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Agnico Eagle says Arctic expertise, exploration are key to Hope Bay turnaround

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Agnico Eagle says Arctic expertise, exploration are key to Hope Bay turnaround

A round of due diligence a year ago on TMAC Resources Inc.'s Hope Bay gold mine in Nunavut, Canada's most northern territory, helped Agnico Eagle Mines Ltd. make a quick call to acquire the Toronto-based Arctic operator about two weeks after the Canadian government rejected a bid by Shandong Gold Mining Co. Ltd.

"We decided then to pick up the phone, once that was publicly announced just before Christmas, and talk with TMAC and see if we could actually get something done," Agnico Eagle CEO Sean Boyd told S&P Global Market Intelligence in a Jan. 6 interview.

Agnico Eagle owns two gold mines in Nunavut, known as Meliadine and Amaruq, and had already signed a confidentiality agreement with TMAC Resources to get a better sense of the Hope Bay property, Boyd said. The possibility of an acquisition grew in early 2020 when TMAC Resources announced a strategic review while staring down debt amid a bumpy ramp-up of the gold mine, and Agnico Eagle took a closer look.

The company decided against a bid at that time. Boyd said Agnico Eagle had its hands full smoothing out "teething" issues at certain other mines in Canada's North. "And we just felt it wasn't the time to be doing M&A and bringing on another project that also needed some work," Boyd said. "We just passed on it."

However, Canada's rejection of the proposed deal by China-based Shandong Gold on national security grounds amid frosty relations between the two countries gave Agnico Eagle a second chance. Agnico Eagle put together a C$286.6 million deal comprising shareholders that own a majority of shares and called for a quick turnaround to close the deal by early February.

Speed was key, in part for logistical reasons, Boyd said. Mines in Nunavut are inherently remote, and Agnico Eagle management wanted to get the operation under the company's roof ahead of resupply season in places dependent on a short summer window in Canada's Arctic.

"It's important for us to get in and work with the TMAC team to be on the 2021 barge season. If this was a drawn-out process ... that would have been problematic for us," Boyd said.

Improvements to metal recoveries at Hope Bay in the second half of 2020 amid reduced operations due to COVID-19 further bolstered Agnico Eagle's interest in the mine, which was once owned by Newmont Corp. before a 2013 deal with TMAC Resources.

Agnico Eagle to carve out new path for Hope Bay

Agnico Eagle plans to run the Hope Bay mine as is initially, with modest optimizations and expectations to recall employees as COVID-19 issues dissipate. Boyd agreed that it was fair to say annual gold output would be in the range of 100,000 to 150,000 ounces in the near term.

"Maybe we can do a bit better. We don't know yet," Boyd said, noting that senior management was on-site to assess operations as well as meet with employees and local communities.

Ultimately, Agnico Eagle wants to increase production to about 250,000 to 300,000 ounces. TMAC Resources had drawn up expansion plans to boost production to a similar range, although Boyd said Agnico Eagle's view of how to get there will likely differ.

A new processing plant will be needed, but site location is an open question that will require more exploration and consideration of a gold belt measuring about 80 kilometers long with multiple deposits and prospects, Boyd said.

Boyd also said Agnico Eagle will be able to spend more money on exploration and assessing how the mine can be developed most efficiently, among other things.

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"We just see this as an opportunity," Boyd said. "It's not because the asset's flawed. It's largely because TMAC just didn't have the financial resources, or the depth of financial resources, to think long term."

Likewise, Agnico Eagle's decade-plus experience of operating in the North gives it a leg up in planning and running the asset, according to Boyd. Logistics will be smoother with its operational know-how, and Agnico Eagle may also be able to save on some input costs when procuring for more than one Arctic gold mine, he said.

Still, Boyd acknowledged that shaping the new asset into the mine Agnico Eagle hopes it can be will be a challenge. "We're not saying this is going to be easy, because it's not easy in the North," he said.