Agnico-Eagle Mines (AEM) Q1 2022 Earnings Call Transcript

Agnico-Eagle Mines (AEM 1.57%)
Q1 2022 Earnings Call
Apr 29, 2022, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning. My name is Dennis, and I will be your conference operator today. At this time, I would like to welcome everyone to the Agnico Eagle first quarter results 2022 conference call. [Operator instructions] Thank you.

Mr. Ammar Al-Joundi, you may begin your conference.

Ammar Al-Joundi -- Chief Executive Officer

Thank you, and good morning, everyone. Well, it's been 65 days since we last spoke, and we've been very busy. We've been working hard, and I think what we'll demonstrate today is some very good progress. There's a lot to cover this morning.

We're excited about where we are. We're excited about where we're going. And for all of you who know us at Agnico, we can go on and on talking about the company. So we'll try to be quick and leave some time for questions.

Before I jump in, really, there are four things to take away from this call. One, on the operations side, we had a good quarter, a good start to the year. We are reiterating our production guidance. We are importantly, in this inflationary environment, reiterating our cost guidance.

And I would say while the -- as we go through the numbers, the numbers are strong, but I would say particularly pleased given the challenges on the production side. And again, we'll get into it a little bit ahead of our internal budget in the first quarter, which is quite exceptional given the initial challenges with omicron in the situation in January. And on the cost side, we're a little below our internal budget on costs, which again is exceptional given the inflationary environment. The gain, reaffirming our combined company full year production guidance of 3.2 million to 3.4 million ounces and our combined company full year cash costs of $725 to $775.

The second item to take away is the integration of the merged entity, we would say it's gone exceptionally well. The senior management team is well in place. Everyone knows what they're doing. We took the opportunity to quickly, as promised, streamline the organization.

And as you see from our results in our press release, that streamlining has resulted in roughly double the synergy savings that we had estimated, we had estimated approximately $15 million a year in streamlined organizational costs, and we're already closer to $30 million on that. Most importantly, however, the team -- the new team is energized, we're excited, and we're focused on the value drivers, which is our third item to take away in this call, are the value drivers. Strong pipeline, as always, but strong pipeline, again, in the Agnico way largely off existing assets in existing jurisdictions. We'll go through this in detail, but it's interesting that as we talk about the great potential at Detour and we talk about the great potential at Malartic, among others.

Those are the two biggest gold mines in Canada. They are two of the biggest gold -- two of the top 10 largest gold mines in the world. And the fact that they have decades of future ahead of them from existing infrastructure in safe jurisdictions. Again, that's always the best return on capital and the best risk-adjusted return on capital.

But we'll go through that in more detail. And then finally, the fourth item to take away, while this was a strong quarter, remember two things. One, this was a stub quarter. So we'll really see the -- there's a lot of complexity in this first quarter, the merger, the stub period.

But the second, third and fourth quarter and going forward are going to be full quarters. And again, we are reiterating that our expectation is the first quarter is going to be our weakest quarter. So we are expecting stronger quarters going forward. So just before we jump into the presentation, Pages 2 to 5 on the presentation, understand that we will be talking about some non-GAAP numbers.

And we are also going to be discussing some forward-looking statements. And we always need to appreciate that in a volatile industry. So maybe just jumping on to Page 6. Some of the highlights.

Again, a solid quarterly production on a combined entity post-merger, incorporating the Kirkland assets post-merger. 661,000 ounces of production at a cost of $811. But for the full company, full quarter, those equivalent numbers are 806,000 ounces at cash costs of $755. So well within our guidance and a very strong start to the year, as we discussed, some exceptional results out of key cornerstone assets, and we'll talk about it.

But LaRonde knocked it out of the park, Fosterville knocked it out of the park, as did Detour. And then solid results from most of the other operations as well. Talking briefly about COVID-19, it seems over the past 12 months, it's gone and it comes back, it's gone, it comes back. Omicron was difficult in December and the beginning of January.

We feel that's largely behind us. We were back at full production pretty much by the end of January and have continued to progress going forward. The inflationary environment, that is the big discussion, something we're focused on, something investors are focused on. The challenges are out there.

We acknowledge it, but kudos to the team. They did a great job managing costs and so far continue to do a great job managing costs. That said, it is out there, and we're all aware of it and even focused on it. As we know, the merger completed on February 8, the synergy, the integration has gone exceedingly well.

The synergies are ahead of schedule. And most important, we are now focused really on the key value drivers that we're going to be discussing. We repaid $125 million of debt with cash as it came due and a quarterly dividend of $0.40 once again. Hitting on some of the key value drivers, and I give credit to Brian Christie and his team, they did a great job in the press release.

And I would encourage you to review that in detail. But hitting some of the highlights, the Odyssey project remains on schedule, on budget. We get asked a lot about can you find people. And what we're finding is while the labor market is tight.

One of the advantages of being the biggest employer and being there for decades is Agnico Eagle and our partners, Yamana, in this project -- but this project is the project of choice in the region, and we're able to get high-quality people. That is a competitive advantage. We're going to talk a little bit about it. But it's not just that the project is on time and on budget, but it's really the potential of the project.

As some of you know, as we transition from Canada's largest open pit mine to Canada's largest underground mine we are going to have excess mill capacity in the neighborhood of 35,000 or 40,000 tonnes a day in the most prospective gold region in Canada and one of the most prospective in the world. And we have made some good progress in looking at opportunities to fill that mill. And we expect maybe this time next year to give a little bit more guidance on that, but good progress on that front. Detour Lake, an exceptional mine as Natasha Vaz said yesterday, we're just now scratching the surface of the life of mine on that project.

The mill optimization projects are going well. We're going to be giving a technical report middle of the year that talks about incorporating some of the additional ounces, the additional 10,000 -- 10 million resource ounces from last year into the mine plan. So a considerable amount of that will be incorporated. We'll be discussing moving from 24 million to 28 million tonnes a year.

But again, this is a mine that has decades of run room, and we are already looking at the potential to move to the permitted 32.4 million tonnes a year. And at a very high level, when you think about it, and this is just at a high level conceptually, but a roughly 1 gram a tonne at 32.4 million tonnes a year, that's about 1 million ounces a year production potential on that. We are, and maybe Eric can talk about this later, continuing to find some excellent exceptional, frankly, drill results as we continue. And we're now even getting excited.

Now this is down the road, but we're getting excited about an underground potential there as well. The Kirkland Lake update, we'll talk about that, but the real potential there isn't sort of $20 million here, $40 million there, it's really about consolidating that land package and bringing all of the different opportunities and holdings we have there together, we're working on that. That's a big project. We'll probably have a better guidance on that in about a year or so, but there's a lot of potential there.

We mentioned Hope Bay. We acquired Hope Bay a year ago. We got our feet wet. We understood what we've got.

We made the decision, as you know, at the end of last year to focus 100% on exploration. That was always the plan. And we've had some exceptional drill results that Guy can talk about. We mentioned them, a couple of them, here, 23 grams over five meters, 9.5 grams over 15 meters.

The potential, as we've always said, is to develop a project that's 300,000 to 400,000 ounces a year, and we're working on it. And again, we'll leave that for a question period maybe with Guy. It's not on the page, but we have to highlight Meliadine growing to 6,000 tonnes a day, LaRonde, a mine that's been in place for 34 years, had some of the best results ever with three exploration drifts, Macassa and Kittila, the shafts coming in. So a lot of key value drivers we're focused on.

Importantly, another good quarter of demonstrating our ESG credentials. I'd like to congratulate Detour Lake, who was awarded the Leading Practice Award by the International Network for Asset Prevention for some of the work and, frankly, some of the research that they're doing. So congratulations to the team there. We'll be publishing our 2021 sustainability report in the second quarter.

And congratulations to our team there as Agnico Eagle was nominated by IR Magazine for having nominated for best ESG disclosure among large-cap Canadian companies. It's important to do the right thing, and it's also important to make sure you're able to talk about it and demonstrate it. You see the numbers here on the page. We continue to have one of the lowest greenhouse gas intensities of gold miners anywhere in the world.

and we are getting better. We've made a commitment to zero carbon emissions, net carbon emissions by 2050. And I think we're going to get there before that. But the most important thing is if you look at our strategy, which is to go to places in the world where we can operate multiple mines for multiple decades and be there for multiple decades, that in and itself, frankly, is a cornerstone of why you have to be good at ESG.

And that's part of who we are. If we take a look at some of the operations, again, a strong quarter. But I just want to point out some of the mines that, again, were exceptional. LaRonde, 105,000 ounces at cash cost of $560.

We talked about Detour Lake. This shows post-merger, 100,000 ounces at $600 for the full quarter, that's 182,000 ounces, again, a stellar quarter. Fosterville, post-merger, 81,000 ounces at a remarkable cash cost of $309 an ounce. For the full quarter, that's 127,000 ounces.

And just to be consistent and finish, Macassa shows 24,000 ounces. But for the full quarter, it was 44,000 ounces. So a pretty decent quarter. Operating margin, post-merger, well, incorporating Kirkland assets post-merger, $663 million.

For the entire company for the quarter, that number was closer to $900 million, which shows you the potential of this company. I might ask our excellent CFO, Dave Smith, to talk a little bit about the strong financial position.

Dave Smith -- Chief Financial Officer

Thanks, Ammar. As mentioned, the strong operations allowed Agnico -- as well as good pricing, of course, allowed Agnico to add cash to the balance sheet during the quarter. We had free cash flow of about $200 million. We have liquidity of approximately $2.3 billion, in fact, not including an uncommitted accordion of $600 million.

As Ammar mentioned, subsequent to quarter end, we repaid $125 million of notes that matured. We paid that off with cash, of course, continued our $0.40 per share dividend, and pleased to announce a new tool. Our normal course issuer bid should be in place next week. And that will provide us with a very flexible way to continue to increase shareholder returns.

I'd like to add as well that financially, our hedge book helped offset some of the inflationary pressures that certainly the entire industry is seeing. And I think Agnico is in a great position to continue with a strong year. Every quarter is going to be better than this quarter, we hope. I'm knocking on wood right now.

And we're very excited to continue delivering very strong financial results to you quarter after quarter.

Ammar Al-Joundi -- Chief Executive Officer

Thank you, Dave. Talking about synergies. We made a commitment to all of you on our last call that we would get into details. We've been doing a lot of work on it.

This is important. This is something that our investors want us to work hard on. So I'll take a minute to go through this. And again, congratulations to our team on the press release, there's a lot of details in there as promised.

But hitting some of the highlights, on the corporate synergies, as we discussed, we have not only exceeded our expectations, we are at a point now where we are upping our guidance on what we think the -- what we know the synergies are going to be. We had guided $15 million to $25 million in the corporate synergies category for this year. We've already achieved $45 million, $35 million of that of which is annual. And we are now anticipating a run rate of between $40 million to $50 million a year, up from $35 million a year.

And we are guiding to $200 million pre-tax in the first five years, up from $145 million, and we're guiding to $400 million over the next 10 years, up from $320 million. So a very good start to that Again, most important, it's not just the dollars, it's that the team is in place and working well and focused. I'm going to jump first to strategic optimization before operational. On the strategic optimization, we are not changing our guidance, we're keeping our guidance.

But I have to say, again, we are well ahead of where we thought we would be. We have talked about, at a very high level, the opportunity to bring amalgamated Kirkland in to the Macassa Mine. That seems to be going very well. We will probably make a decision on that before the end of this year.

And we think there's the potential to bring in potentially another 40,000 ounces a year in production, roughly has the potential to generate an additional $40 million a year into that project with resources in around the 600,000 to 700,000 ounces and the drilling going pretty well. So you can see that one project alone has the potential to generate well more than half of the total synergies that we anticipated strategically over the next 10 years. And there are other things going on. A very simple example, potentially $20 million in savings on equipment, onetime, associated with the Upper Beaver shaft just from equipment that's available from the Macassa shaft sinking.

So again, good progress on the strategic optimization. And then on the operational synergies, again, a good write up in the press release, but I'll hit some of them. Procurement, we're still targeting $50 million a year by 2024, and we're making good progress there. Some ideas on optimizing availability of the mill at Detour, something as simple as that, potentially $5 million a year.

Some good work on the potential to steepen the pit wall slopes at Detour, that has the potential, that one item alone, has the potential, given the size and tenor of that mine, of potentially $100 million over the life of the mine. And then a basket of other things we talked about in the press release, centralized control systems, energy management, core scanning, renegotiating refining contracts. Those together potentially $75 million a year. If there are questions afterwards, we can get into it.

But suffice to say, very good progress, and we really have just started. So again, Agnico Eagle, we want to maintain a simple, consistent, disciplined and importantly, proven approach to value creation, which has three key components: Low cost, strong margins, strong cash flows, a robust production profile with a strong growth pipeline in the safest and best jurisdictions in the world with proven leadership and a track record of building value per share. Importantly, value per share and it's interesting I was talking with Dave Smith yesterday about, look, what's the key message we want to give today. And Dave said it's the same one always, we focus on value per share.

All the time doing this with ESG leadership, it is simply the right thing to do, and it is a core part of our strategy, growth potential from existing mines and growth potential from a pipeline of high-quality exploration and development assets and gain some excellent exploration results in the first quarter that we're excited about and going to build on. And then building on a long history, a long history of capital return to shareholders, 38 years of consecutive dividend payments. And we haven't mentioned it, but we think the -- well, the normal course issuer bid will be approved probably next week or the week after. So that's good.

I've been going on for a while. I'm just going to take a couple of more minutes to flip through some of the operational highlights. I'll be very quick because we want to leave time for questions. LaRonde, exceptional quarter.

You've seen the numbers, but there are some details that I think are also exciting. 31% of our production mucking was done autonomously at LaRonde. That's impressive. We are almost at a third being done autonomously.

And at LaRonde Zone 5, 21% of mucking done in automated mode. So this is a mine that has been operating for 34 years that we're continuing to invest in. We're investing in three exploration drifts, and we're investing in modernizing it an exceptional cornerstone asset for Agnico Eagle. Canadian Malartic, we talked about the project on surface and shaft is on budget, on schedule.

And then again, interestingly, we make the point here, and this gets to the full potential of this asset, which is not just the underground but the available mill capacity. In the final point on this page, we added the Camflo property to the partnership's landholding. And this is an asset that has potential to provide some of that feed into the mill. Goldex continuing to get good exploration results, continuing to get good production.

The rail bar set a record average for the quarter, above the design capacity and a record single day performance of 10.7 tonnes. Again, exceptional progress. Detour Lake, full quarter, 182,000 ounces. I just have to repeat that, that's quite remarkable, very good cost control in the first quarter, considering fuel and electricity costs and all of those associated things.

And again, to repeat, we will be giving a technical report in the middle of the year. But that's really just the next step in what we think is going to be a long path of value-added in the Detour potential. Macassa, I won't -- I'll go quickly at Macassa and Kittila, both having their shafts on schedule coming in at either the end of this year or early next year. Meliadine going up to 6,000 tonnes a day and Fosterville, again, an exceptional quarter and hard work and good effort by our team in Mexico as always.

And with that, I think we will stop and open it up for questions.

Questions & Answers:

Operator

Thank you, sir. [Operator instructions] Your first question comes from Tanya Jakusconek with Scotiabank. Please go ahead.

Tanya Jakusconek -- Scotiabank -- Analyst

Great. Thank you. Good morning, everyone and congrats on your first quarter as the NewCo. A couple of questions, if I could.

First off, just a quick one, maybe Dave can help me on this one, just to reconcile the numbers that you provide on an annual basis for guidance for production costs. You mentioned Q1 would have had production of 806 at $755 total cash cost. Do you have the all-in sustaining costs so that I can reconcile that too, please?

Ammar Al-Joundi -- Chief Executive Officer

We can give you that, Tanya. I don't have that available with me right now but we'll get you that.

Tanya Jakusconek -- Scotiabank -- Analyst

OK, that's perfect. And then maybe just keeping on the quarters. You mentioned that we're going to see much stronger quarters going forward. In the press release, you did give guidance on your mines and what we're seeing quarterly at LaRonde, Fosterville, Meadowbank and Kittila.

Can you just give us maybe from a bigger picture, are we looking at like 55% second half or 53% second half? I know it's quarter-over-quarter improvement, but just a bit more that we can help us with some of the other mines.

Ammar Al-Joundi -- Chief Executive Officer

Well, I think what we said the last time was roughly -- the first quarter would be 20,000 ounces less than the next three. I think that's not a bad number for the second quarter. But -- and again, we're working on this. But actually, we think that we're going to get stronger throughout the year.

So the 55%, 45% is probably not a bad number at a high level, Tanya.

Tanya Jakusconek -- Scotiabank -- Analyst

Just maybe on the pressures. Just Dave, again, just to come back on -- you've used $0.90 Canadian per liter for diesel. I think the sensitivity for a 10% move was $6 an ounce. Is that still correct?

Dave Smith -- Chief Financial Officer

Yes.

Tanya Jakusconek -- Scotiabank -- Analyst

And you do have about 40% of your oil hedged?

Dave Smith -- Chief Financial Officer

Yes, that's correct.

Tanya Jakusconek -- Scotiabank -- Analyst

Can you just remind me when you would be purchasing all of your fuel for? None of it -- and what you're seeing out there for purchase price?

Dave Smith -- Chief Financial Officer

Yeah. Beginning in July, and the forward rate for the remainder of the year on diesel is about $1.13 a liter. That number was a bit a week old.

Tanya Jakusconek -- Scotiabank -- Analyst

And when do you expect to have all of this done, in having to put it all in and complete?

Dave Smith -- Chief Financial Officer

I think the shipping season ends kind of September, October.

Tanya Jakusconek -- Scotiabank -- Analyst

I just wanted to ask about other inflationary pressures. You say that your labor, you're not seeing it. Are you seeing it in any other consumable?

Ammar Al-Joundi -- Chief Executive Officer

We are seeing it. And interestingly, Tanya, probably we're getting the most pressure is in Finland. And that's because it's closest to where the supply chain disruptions are most acute. So we are seeing it, but the team has done a good job, and it's a combination of -- they got out ahead, we got out ahead of some of this.

We're trying to manage it contemporaneously. And also some of it, frankly, is -- they've done a good job on efficiency of operations, which has offset some of that. But we are seeing inflation in consumables. We're seeing it in reagents.

We're seeing it in steel. It's out there.

Tanya Jakusconek -- Scotiabank -- Analyst

Can I ask what sort of levels are you seeing the inflationary pressures at in those items?

Ammar Al-Joundi -- Chief Executive Officer

You mean percentages?

Tanya Jakusconek -- Scotiabank -- Analyst

Just a round number.

Ammar Al-Joundi -- Chief Executive Officer

Well, we -- in general, we gave sort of 5% to 7%. I would say the numbers are higher than that, but we've been able to offset some of that. So again, frankly, some -- there are some items that are 30% and some items that haven't moved. It moves across the board.

Probably the most sensitive ones again, if there is a geographic split, but probably the most sensitive ones have been around in Finland, and it's mostly to deal with steel and items that are derivatives of natural gas, which again is logical.

Tanya Jakusconek -- Scotiabank -- Analyst

Got you and I'll leave it someone else. Thank you.

Operator

Thank you. Your next question comes from Fahad Tariq with Credit Suisse. Please go ahead.

Fahad Tariq -- Credit Suisse -- Analyst

Hi. Good morning. Thanks for taking my question. Maybe first for Dave Smith, just an accounting question.

So I can see that the Kirkland operations, the sales exceeded production by about 56,000 ounces. I just want to clarify, after all the adjustments and everything, those 56,000 ounces are included in revenue, but the costs are not included in the quarter. Is that correct?

Dave Smith -- Chief Financial Officer

Yeah. The inventory cost went through the production costs and you're talking about the revalue, right?

Fahad Tariq -- Credit Suisse -- Analyst

Correct.

Dave Smith -- Chief Financial Officer

Because they had to be revalued to market.

Fahad Tariq -- Credit Suisse -- Analyst

Yeah.

Dave Smith -- Chief Financial Officer

That's correct. So the costs did go through a, they would go through our costs because they're -- you value them at basically at spot.

Ammar Al-Joundi -- Chief Executive Officer

Increment goes through the production cost.

Fahad Tariq -- Credit Suisse -- Analyst

OK, I understand. And then just switching gears to the operational synergies that you highlighted for 2022. You mentioned in the press release that it could be about $10 an ounce this year. Is there a particular quarter or timing when that comes in? Or is it kind of gradually through the year?

Ammar Al-Joundi -- Chief Executive Officer

It's gradually through the year.

Fahad Tariq -- Credit Suisse -- Analyst

OK. And then just the last one for me on Macassa. Any update on the battery electric fleet? And you mentioned in previous conversations that you might be looking to use conventional diesel or something to get the productivity back up. Any update on that?

Ammar Al-Joundi -- Chief Executive Officer

Natasha?

Natasha Vaz -- Chief Operating Officer

Yeah, sure. Thanks, Ammar. Hi, Fahad. Yeah, so we are continuing to work with the OEMs on that.

In terms of the performance, we are continuing to troubleshoot with Sandvik in terms of our battery issues. We're seeing a supply chain concern. I think there's like a chip shortage that's plaguing the automotive industry, but seeing a slight increase in availability, we're fixing some of the issues, but still a lot of work to do on that end.

Ammar Al-Joundi -- Chief Executive Officer

And Natasha, maybe just talk a little about the ventilation progress and the flexibility that I'll give you.

Natasha Vaz -- Chief Operating Officer

Right. So at the end of this year, we plan on completing the ventilation upgrades. So we're going from 300,000 CFM to about 750,000 CFM with the shaft and the two raised bores that we're doing. We've completed the excavation of the raised bores.

We are putting the fans on later this year and changing out the entire event system. So we should have additional flexibility in our options.

Fahad Tariq -- Credit Suisse -- Analyst

OK. And just a follow-up on that. So Natasha, it sounds like it's not the focus is not really trying to go back to conventional diesel just yet, it's still trying to figure out the battery electric fleet. Is that...

Natasha Vaz -- Chief Operating Officer

Absolutely. We're committed. Yes, absolutely. We're committed to pursuing this, but it's nice to have that optionality.

Fahad Tariq -- Credit Suisse -- Analyst

That's it for me. Thank you very much.

Operator

Thank you. Your next question comes from Lawson Winder with Bank of America. Please go ahead.

Lawson Winder -- Bank of America Merrill Lynch -- Analyst

Good morning, Ammar and Dave. Very nice to hear from you both and thank you for todays' update. Ammar, I wanted to address my first question to you. In the Aussie press in late March, you made some comments that Agnico wants to own more Aussie assets.

And just would be curious what form that expansion might take? And would that be acquisitions of existing operations, development stage or exploration stage and would you consider partnering as well?

Ammar Al-Joundi -- Chief Executive Officer

Hi, Lawson, and that's nice to hear your voice. Well, I tell you, we had a fantastic trip to Australia and the team there is really a great team, nice people, very capable a lot, and they're doing a lot of really leading-edge technical things there. Australia absolutely meets the criteria of geologic potential for multiple mines over multiple decades and meets the criteria of you can actually operate there for multiple decades. So it has great potential.

It would be tough for us to go there from nothing because the Australians are good miners. But what we've got now with the merger is an exceptional team, an exceptional asset and a strong foothold. And also as we discovered some really good relationships with the local communities and government officials. So it is now in the category of good regions in which we operate.

To the extent we expand in Australia, Lawson, we do it the same way you would. Any opportunities there have to compete with opportunities everywhere else in the world. And we typically think we make a lot more money for our shareholders through the drill bit. And so we probably would do what we've done successfully for over 60 years, which is sort of take a small position early based on knowledge and then try to create value from there.

So good region, good potential and the opportunity to expand will be a function of what we see, and it will have to compete with everything else.

Lawson Winder -- Bank of America Merrill Lynch -- Analyst

OK. And then that same sort of vein, are there any assets in the portfolio that might be worth considering divesting?

Ammar Al-Joundi -- Chief Executive Officer

There are some positions that we have that we look at. Those are nonoperating assets and we're always looking at optimizing the portfolio that we have. But all of the operating assets we have right now we're pleased with.

Lawson Winder -- Bank of America Merrill Lynch -- Analyst

OK, great. And if I could ask on the diesel costs again. You guys made a comment in the release that the hedges you have in place, you expect to provide some degree of protection against inflation for the 2022 seal less diesel cost. Maybe just a little color on that, particularly, like in terms of sort of the strikes on the hedges.

I mean, do they -- is there a large sort of strike that happens in July when you guys are going to be paying for those diesel costs? And just sort of the kind of moving parts around that would be helpful.

Dave Smith -- Chief Financial Officer

Yeah, it might be helpful. Our hedge rate is $0.57 a liter. The guidance rate was $0.90 a liter. And as I mentioned, the forward rate was $1.13 a liter.

So mark-to-market, our hedge book right now is about $20 million in the money, which certainly will help us.

Lawson Winder -- Bank of America Merrill Lynch -- Analyst

OK, got it. Thanks very much, guys.

Dave Smith -- Chief Financial Officer

Thank you.

Operator

Thank you. Your next question comes from Jackie Przybylowski with BMO Capital Markets. Please go ahead.

Jackie Przybylowski -- BMO Capital Markets -- Analyst

Thanks very much. I wanted to congratulate you guys on this synergy so far, it's really terrific to see that's ahead of schedule. And maybe if I could ask you a question, just to get some more color on that. Are the synergies that you've achieved year-to-date so far and that you're expecting to achieve this year? Are those new synergies that you had not previously identified? Or are you bringing forward things that you weren't really expecting so far.

Maybe if you could just give us a little bit more info on that, I'd appreciate. Thanks.

Ammar Al-Joundi -- Chief Executive Officer

Yeah. Thanks, Jackie. It's a bit of both. As you look at this, we did a lot of due diligence on this deal, including on the synergy potential.

And for every 10 units of synergies, you identify four of them don't pan out and then you find four that you never thought of. So it is a bit of a combination. But the biggest thing is I think Dave and his team did a great job on cutting some of the financial costs very quickly within weeks. This is you don't need two bank facilities, you don't need two insurance policies.

So some of that had been identified, but they did it in weeks rather than months. So that's good. A big difference is, frankly, on the streamlining. It's hard to know exactly what you were going to have when you get together.

And then when you put pencil to paper and make the decisions, we wanted to move quickly. And the reason we wanted to move quickly on the streamlining, it's not just about cost, it's about human being. The worst thing you can do is leave people out there and they don't know if they have a job or not or what their future is. So we made a commitment that within 30 days, we would have that all worked out and we did it within 20 days.

And so part of it was clearly, we achieved them faster than we thought. But it really, to be honest, it was mostly about treating our people fairly.

Jackie Przybylowski -- BMO Capital Markets -- Analyst

That's great. Thank you. And maybe I could ask about the NCIB that you announced in February and now that you've approved. Can you talk a little bit about -- and I know it's hard to know exactly, but can you talk a little bit about what the strategy will be in terms of how quickly that gets executed? Is this something you expect to do fairly quickly or is there like $500 million over a year or something like that?

Dave Smith -- Chief Financial Officer

Well, I think it's a very flexible tool that we have, and we'll try and be opportunistic in the buying, and I anticipate it will probably be spread out over most of the year. But again, that could change if there is a moment that we feel we should be opportunistic. And that's what I like about this tool in terms of return of capital. we've always represented that this would be our variable very flexible tool that we have for return of capital.

Jackie Przybylowski -- BMO Capital Markets -- Analyst

Maybe if I could just ask one last question. Ammar, you mentioned this earlier and you sort of promised us that we could ask about this on the Q&A. So I'll bite. Can we hear a little bit more color from Guy about the changes to Hope Bay and the exploration that's going on so far in what the current thinking is for once it restarts production? Thanks.

Guy Gosselin -- Senior Vice President, Exploration -- Analyst

Hi, Jackie. It's Guy. So we've been ramping back up our capacity to drill. And the first thing we really want to wrap our head around was the potential at depth and Doris.

As you know, there's currently there was all of the mining infrastructure. And we came out of our due diligence with some good idea about potential to connect some of those deep patch at Doris basically below the dyke. And we've been positioning some drill specifically on surface in the first quarter. And we got, as you can see in the press release, some pretty nice 10-gram plus, even 25-gram over five meters in an area that was left untested before we took over.

So we're quite pleased to see that within that -- those fold limb at depth because it's a tight fold at Doris that we're dealing with that not only we're getting good results in the full inch like they were used to mine in the past. But now we're developing and confirming that with a full them, there is some pretty decent high-grade vein system, and it's an open at depth and laterally. So we're going to continue to ramp up the drilling in this area.

Ammar Al-Joundi -- Chief Executive Officer

It's not -- and again, it's not just at Doris. The key there, Jackie is, and maybe Dominique can talk a little bit more about this. We operate -- we know what it takes to operate in the North and our vision is again sort of 300,000, 400,000, maybe more for that project. And Madrid has had a lot of drilling, and we know there's gold there, and we know we can bring it in.

But Doris is important in and of itself, but as part of the bigger strategy, it is additional high-grade tonnes that are right there, right beside the mill that would supplement the Madrid. And we haven't even talked about Boston yet, but it's -- again, it's not just Doris, but it's how Doris fits into the overall strategy. I don't know, Dominique, if you wanted to make a few points on that?

Jackie Przybylowski -- BMO Capital Markets -- Analyst

Yes, we're looking to have, let's say, a first project, 300,000 ounces, 10 years kind of project to kick out and to start the foundation looking to work probably with the current mill, improve there throughput to 4,000 tonnes per day. So this is our first, let's say, initial project. And as exploration goes, eventually increase that to, I don't know, be 500,000 ounces at some point. This is still early.

I'm very happy that we see a good hit, and we're right now, the favorably the focus is full blast on drilling and exploration.

Guy Gosselin -- Senior Vice President, Exploration -- Analyst

And if I may add, Jackie. We are all excited as well to go back to Boston as soon as possible. And one of the things we've -- that we had to bring supply on the barge last at last summer -- and we did the winter rolled owing to bring all of the new equipment to refurbish that camp that date from the '80s when BHP put that camp together. So we had to give a little bit of so that can we be in a position to resume drilling.

And because we know that the deposit remains open down there with some very high grade sitting at depth, 1 kilometer, but also phases on was still open with 56-gram over 10-meter at the kilometer depth. so we know there's a lot more to find over there as well. It's all that we can ramp up activity from the small case at the small scale it was on their TMAC, bring more rig and increase our drawing capacity over there.

Jackie Przybylowski -- BMO Capital Markets -- Analyst

That's a super helpful update. Thank you. Sounds like there's a lot of opportunity there. Thanks very much.

Operator

Thank you. Your next question comes from Greg Barnes with TD Securities. Please go ahead.

Greg Barnes -- TD Securities -- Analyst

Yeah. Thank you. Ammar, I just want to talk about Detour and the upgrading mine plan. Do you see that more as an incremental step, and then 18 to 24 months or 12 to 18 months from that point, you'll have another mine plan with the expanded mill, the underground.

And would the undergrounds be the source of all the feed to fill the mill from the 28 million to 32 million tonnes?

Ammar Al-Joundi -- Chief Executive Officer

Well, Greg, thank you for asking the question because that's exactly right, and we want to make that point. We see this update midyear as just an increment to a much longer path. Again, as I said it and I like Natasha's quote yesterday, this is just scratching the surface of the life of mine potential. So yes, Greg, I think that's the right way to think about it.

The update in mid this year will be the work that's been done to incorporate some of the drilling from last year and to incorporate some of the steps to go from 24 million to 28 million. Probably, and John and Natasha are working on this closely together. The next step is to look at the potential to grow from 28 million to 32 million tonnes a year. And importantly, to get to 32 million tonnes a year, it's not just the underground because the pit continues to expand.

And maybe, Eric, after this, Eric Kallio is on the line, he can jump in on the exploration. But we think the pit can support a lot of throughput through the mill. But the underground, when we get to the underground, that would be at, say, 3 grams, 2.5, 3 grams versus 1 gram. So it would be an opportunity, Greg, to add higher grade through the mill which could potentially get your annual production even above, again, hypothetically, if you do the math, above 1 million ounces a year.

But that's the idea. Expand the mill or lease up the potential, expand the mill, expand the pit, expand the potential and go underground to get some higher grade feed.

Greg Barnes -- TD Securities -- Analyst

And the mill is licensed to 32 million tonnes is what I understand. It wouldn't require significant capex to achieve those numbers.

Ammar Al-Joundi -- Chief Executive Officer

It is permitted at 32.4 million, you're exactly right. And we are going through the process of getting there. And we were talking to John about this yesterday. It's -- John's our local mad scientist.

He's got 10 different things he's thinking about. But this is something that's probably going to take us a year, year and a half to really come back with something more focused. But what I would ask -- maybe, Eric, I know you're on the line, Eric, maybe you can just hit a couple of the -- just briefly some of the highlights on the exploration progress.

Eric Kallio -- Chief of Growth and Exploration

For sure. Yeah. Good morning, everyone. As Ammar said, we feel very positive about the exploration potential of Detour.

We had the press release in February. And actually, from that, you could see we had a lot of new drilling happening on the west side of the pit, where previously there was very little doing done and so very good results both on the north side and deep and on the west limits. So we do expect that we can grow the tip when we do the midyear update, already just from the results we have. And then with the press release that we just had yesterday, we announced new holes that were up to 500 meters to the west and showing some -- even continue to show broad intersections, but even some very good grades up to 38 grams over 3, 3.3, 3.5 over 48, 3.1 over 10.

So these are continuing to make us very positive about growing. So -- anyways, I think yes, just continue to look very good. And we know the structure from our regional geophysics and things looks like it tracks for at least another kilometer due to the west. Beyond that, we don't know.

-- but we're -- we continue to see a lot of growth to growth.

Ammar Al-Joundi -- Chief Executive Officer

Thank you, Eric. And again, thanks, Greg, for asking because that's an important point.

Eric Kallio -- Chief of Growth and Exploration

Thanks, Ammar.

Operator

Thank you. Your next question comes from Anita Soni with CIBC. Please go ahead.

Anita Soni -- CIBC World Markets -- Analyst

Hi. Good morning, guys. Thanks for taking my call. I just have questions about the nitty gritty as I usually do.

So on the Macassa, the grades were a little lighter, I guess, than you had just forecast a few weeks ago. So how do we expect the grades to evolve over the year? Like, will it rebound? I mean, I think you were forecasting 24 and it came in at 16. So could you give us a little bit of color on that and how we would expect those to rebound over the course of the year?

Natasha Vaz -- Chief Operating Officer

Hi, Anita. It's Natasha. Yes, so the grade was slightly down in comparison to what we had predicted for Macassa in the quarter. But in general, as you know, Macassa is a pretty high-grade ore body.

It's a small tonnage operation. So we expect to see some great variability in a localized scale. That, coupled with some changes in the mining sequence has contributed to the great variance. So we expect that to stabilize over the next couple of quarters to hit our guidance.

Anita Soni -- CIBC World Markets -- Analyst

OK. Similar question. I guess this one goes to Dominique for Meliadine and Amaruq as well in terms of the grades.

Dominique Girard -- Senior Vice President Operations, Canada and Europe

Yeah. Good morning, Anita. At Meliadine and Meadowbank, both were affected with takeover issues early in the year. Now it's behind us, mainly because now it's much easier to do with contact and contact tracing.

So Meliadine and Meadowbank back and all the crew is back. Meliadine, we had to process a bit more low grade -- not low -- let's say, open pit stockpiles while we had decreased the mining activity. So that affected the answers and the cost. But now we're back on track and grade is going to increase.

At Meadowbank, we started January, stopped. We restarted. The grade did improve through the year. We did the first quarter at 2.26 gram per tonne, and we're forecasting the year at 2.5, 2.6.

So more deep we go into the pit. The grade is increasing. We're going to see it this year in the coming years, but also the underground is coming in. So we're going to have the first test where we're doing all the commissioning in May and underground is going to be in full production, let's say, in the Q2 -- Q3, Q4, which is going to be a very good help.

And this is a good part of the increased ounces coming in the second half of the year.

Anita Soni -- CIBC World Markets -- Analyst

OK. So was the underground not operational yet from -- I thought I had seen that there was a few stopes in Q4 and Q3. Did it contribute at all yet in this quarter or no?

Dominique Girard -- Senior Vice President Operations, Canada and Europe

Well, we had a bit of a development ore, but it was very, very minimal. It's going to really start more in May and June. And I'm very happy also the with an important KPI is the broken inventory. We are today at 2.5 million tonnes broken.

So in good position for the remainder of the year.

Anita Soni -- CIBC World Markets -- Analyst

OK. And then flipping to LaRonde, which was the opposite. So pretty good grades. I guess you said you were -- and I'm not going to remember what zone it is, but it was the higher-gold-lower-zinc zone.

Is that going to persist for in the next quarter or does that mean are you guys immediately out of that?

Dominique Girard -- Senior Vice President Operations, Canada and Europe

Yes. The upgrade mainly came from the East Mine in Q1. I need to say that this month is still good. Let's see how it's going to go through the year -- but part of the upside was coming from stope also that were planned in Q4 that has been moved in Q1.

So we're not getting those results, but they are still looking to be on forecast for the end of the year.

Anita Soni -- CIBC World Markets -- Analyst

OK. And then last two questions on costs. So -- and I think these relate a little bit more to -- so firstly, on Macassa, costs there were a little bit better than planned. Could we talk about -- I think it was like $523 versus $692 guide, and that's more in line with what was happening last quarter and the prior quarters under the chaos hold.

So maybe there was a little bit too much conservatism? Or is that going to -- are the Macassa costs going to trend up over the year?

Natasha Vaz -- Chief Operating Officer

We expect to be within guidance, Anita, there are some delays with respect to some of the sustaining capital in terms of the No. 4 shaft and such. So we plan on being within guidance.

Anita Soni -- CIBC World Markets -- Analyst

Again, I was talking about unit cost there.

Natasha Vaz -- Chief Operating Officer

Cash cost per ounce?

Anita Soni -- CIBC World Markets -- Analyst

Yeah.

Natasha Vaz -- Chief Operating Officer

Yes. Same. Same.

Anita Soni -- CIBC World Markets -- Analyst

OK. Maybe I'll take that one off-line. But the -- and then lastly, Kittila, right? So you were guiding that they've got a little bit higher. We are seeing more inflation impacts because they're closer to the supply chain issues.

So maybe that's one that might be a little bit higher than guide for the course of the year. Is that correct?

Ammar Al-Joundi -- Chief Executive Officer

Yes. We see more pressure in Kittila Energy. And as Ammar mentioned, some supply stuff. Also, what affected the first quarter is also because we had less ounces.

Now it was not the question, Anita, but I could answer that one. We had some challenges on the sequence where secondary stope ground condition pushed us to mine smaller stope at the end of the panel with a bit more dilution. So the higher grade to plan in Q1 are postponed into the year. So now the team is back on track, and we're going to be -- we are currently now in those higher grades though.

So having more answers going to just help to have a better cost.

Anita Soni -- CIBC World Markets -- Analyst

And then last one on the cost was Fosterville was a little high too. And that is that because of the restrictions that are happening in Australia in terms of the labor movement? Or have you been impacted by -- or you've not been impacted by that and something else?

Natasha Vaz -- Chief Operating Officer

No, there's no labor impact. COVID did impact all of our sites, but we were able to mitigate that. In terms of our cost profile, we've been pretty good in comparison to our budget.

Dave Smith -- Chief Financial Officer

Yeah. Anita. So yeah, there's a cash cost per ounce and then there's the unit cost per tonne. They do vary a little bit there.

Overall, though it went pretty well. That's just kind of a normal variance, yeah.

Anita Soni -- CIBC World Markets -- Analyst

Yes. I was just kind of -- one of your competitors reported last week, and they were talking about a lot of labor issues in Australia. And then I guess the last -- similar to that, I want to follow up with -- the other thing they mentioned was that they were a bit behind in terms of sequencing on some of their operations. Is there anything that we should be aware of, like as we come out of hopefully, fingers crossed, COVID, the last two years where maybe there's some stuff that you might be -- kind of work to catch up on in the next two years?

Ammar Al-Joundi -- Chief Executive Officer

No, not really. There the first quarter, January was tough. And so the guys had to do a lot of work. And as Dominique said, a simple example of that is Meliadine had to use more of the stockpile.

So we'll be refreshing those stockpiles. It's again, it's the normal kind of variance.

Anita Soni -- CIBC World Markets -- Analyst

All right. Thank you very much. That's it for my questions.

Dave Smith -- Chief Financial Officer

Thank you.

Operator

Thank you. Your next question comes from Mike Parkin with National Bank. Please go ahead.

Mike Parkin -- National Bank Financial -- Analyst

Hi, guys. Thanks for taking the question. Can you just give us an update where and what permits are remaining outstanding at Detour Lake for the year kind of going after West Detour in the Saddle Zone, I recall all those permits quite aren't in hand yet.

Ammar Al-Joundi -- Chief Executive Officer

Mohammed, why don't you take that one?

Mohammed Ali -- Vice President, Sustainability and Regulatory Affairs

Sure. Thanks, Mike. With respect to the remaining for Detour, there's two principal permits that we have submitted to the authorities, and we're waiting for their technical review and approval. They would be the closure plan associated to the West Detour layout and includes closure and closure costs as well as the -- what we call the overall benefits permit for the Caribou once those are in place, that would be the two principal permits, then there's just your construction various other permits.

Mike Parkin -- National Bank Financial -- Analyst

Great. And do you have agreements with all your First Nations as well?

Mohammed Ali -- Vice President, Sustainability and Regulatory Affairs

Correct. We do. And if I may say noteworthy that we have all our agreements in place and updated agreements that include West Detour.

Ammar Al-Joundi -- Chief Executive Officer

Including a trip next week to sit down with one of the first nations and celebrate some of those agreements. So very good progress by the team on that. Just to close up -- I'm sorry, Mike, not cutting you off, Mike, did you have any other questions?

Mike Parkin -- National Bank Financial -- Analyst

No. No, that's it for me. Thanks so much.

Ammar Al-Joundi -- Chief Executive Officer

Well, before we end, I think, Dave, you wanted to make a comment?

Dave Smith -- Chief Financial Officer

I just wanted to go back to Fahad's question for clarity. I think Fahad was asking about whether or not the fair value inventory adjustment was included in our non-GAAP KPIs like cash cost. The answer is it's included in the GAAP measures, so it's on the income statement, as I mentioned, in production cost, but it is not as a non operating non cash non recurring item, it is not reflected in the KPIs, the non-GAAP KPI. So I just wanted to make that clear.

Ammar Al-Joundi -- Chief Executive Officer

Thank you, Dave. And so in conclusion, I'd like to thank everyone on the call. Again, 65 days ago, we ended the call by saying we're going to work hard for our investors and our communities. And I think we have been -- we've made good progress.

And I'd also like to thank all of our employees who really have been working hard. So thank you, everyone. Have a great day.

Operator

[Operator signoff]

Duration: 60 minutes

Call participants:

Ammar Al-Joundi -- Chief Executive Officer

Dave Smith -- Chief Financial Officer

Tanya Jakusconek -- Scotiabank -- Analyst

Fahad Tariq -- Credit Suisse -- Analyst

Natasha Vaz -- Chief Operating Officer

Lawson Winder -- Bank of America Merrill Lynch -- Analyst

Jackie Przybylowski -- BMO Capital Markets -- Analyst

Guy Gosselin -- Senior Vice President, Exploration -- Analyst

Greg Barnes -- TD Securities -- Analyst

Eric Kallio -- Chief of Growth and Exploration

Anita Soni -- CIBC World Markets -- Analyst

Dominique Girard -- Senior Vice President Operations, Canada and Europe

Mike Parkin -- National Bank Financial -- Analyst

Mohammed Ali -- Vice President, Sustainability and Regulatory Affairs

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