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Meliadine promises as Meadowbank disappoints
Major Meadowbank gold mine losses reported as Agnico-Eagle Mines Limited gets set to construct all-weather access road to sister project Meliadine

Thandiwe Vela
Northern News Services
Published Friday, February 24, 2012

QAMANITTUAQ/BAKER LAKE
Meliadine, the sister project of the Meadowbank gold mine, appears to be the silver lining amid Agnico-Eagle Mines Ltd. reports of more than USD $600 million in net losses in the last quarter of 2011.

NNSL photo/graphic

An aerial view of the ramp portal to Meliadine's Tiriganiaq deposit, in September 2011. - photo courtesy of Agnico-Eagle Mines Ltd.

The international gold company reported the losses were mostly due to a USD $644.9 million write-down of Meadowbank, which has fallen from the previous book value of about USD $1.7 billion for the property, plant, and mine development, to about $762 million in the past year.

The write-down of the Meadowbank mine project near Baker Lake, which is 100 per cent owned by Agnico-Eagle Mines Ltd., was a result of persistently high operating costs and lower than expected grades to the mill.

"Although Meadowbank has been a tougher situation than we had expected, it certainly doesn't diminish our enthusiasm for doing business in Nunavut," Agnico-Eagle president and CEO Sean Boyd said in a 2011-fourth-quarter conference call earlier this month. "We know it's been a difficult year. We've been able to adapt and adjust and we feel we have a solid plan to sort of re-base and build from there."

In addition to higher than expected dilution of the ore in the pit, higher than expected operating costs of CAD $98 per tonne in the fourth quarter, has resulted in a reduction in Meadowbank's ore reserves.

Higher operating costs directly impact the gold grade the company could mine economically, spokesperson Dale Coffin told News/North, so some of what was previously considered ore is now considered waste.

While total cash costs per ounce across all of Agnico-Eagle's mines are expected to be in the range of USD $690 to $750 in 2012, cash costs for Meadowbank are expected to be much higher, at USD $1,040 per ounce.

As a result, the company has reduced the life of the mine by about three years, with Meadowbank operations now scheduled to be complete by 2017, instead of 2020.

About 73 million tonnes, or 36 per cent of the previously budgeted ore and waste tonnes will not be mined under this plan.

In light of the significant write-down at Meadowbank, analysts questioned how Agnico-Eagle is so sure there is no write-down apparent at Meliadine, considered to be a long-term "cornerstone asset" for the company.

"The key differences on the economics are strictly from the fact that we're dealing with much higher grade, we're dealing with better logistics, we're dealing with a larger deposit," Boyd responded.

"People try to compare the two and they're totally different even though they're in roughly the same geographic area. They're totally different in terms of size; Meliadine is already more than double the size of Meadowbank. They're totally different in grade; Meliadine is double the grade of Meadowbank, and Meliadine is much better located to deal with the high cost of logistics in the Arctic environment."

The indicated resource at Meadowbank is 1.3 million ounces, with an average reserve grade of 2.8 grams per tonne.

Indicated resource at Meliadine is 1.7 million ounces, with an average reserve grade of 7.2 grams per tonne.

Boyd highlighted Meliadine's proximity to Rankin Inlet versus Meadowbank's proximity to Baker Lake.

The 24-kilometre, all-weather access road recently approved by the Nunavut Impact Review Board from Rankin Inlet to Meliadine, will provide a year-long link from the hamlet into the advanced stage gold exploration project, versus the current link from Baker Lake to Meadowbank, which is more than four-times longer, at about 110 kilometres.

Due to Meliadine's close proximity to the hamlet, Agnico-Eagle is even considering more frequent returns home for workers at Meliadine, as opposed to the traditional two-week in, two-week out schedule. The company believes this could provide opportunities in terms of camp size, will lower cost, and improve productivity.

The idea will be discussed with the communities as the project develops, said Coffin, Agnico-Eagle's spokesperson.

Capital cost of the road is estimated to be USD $21 million, with construction expected to begin next month, and complete by April 2013.

With Meliadine slated to begin production in 2017, the same year Meadowbank is targeted to shut down, Agnico-Eagle is looking at leveraging any capital investments at Meadowbank to assist at Meliadine, including equipment and workers.

The 2012 exploration budget for Meliadine is USD $30 million.

At Meadowbank, the company is proceeding with the new mine plan of about 295,000 ounces of gold to be produced at the mine this year, down from the previously planned 369,500 ounces.

Shares of Toronto-based Agnico-Eagle Mines Ltd. closed at USD $36.38 on Tuesday on the Toronto Stock Exchange.

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