Canadian gold-miner Agnico-Eagle Mines, which is bringing five new gold mines into production over the next two years, expects the gold price to continue to strengthen as investment demand for the yellow metal grows, CEO Sean Boyd said on Friday.

“We don't sense that the broader investor base is paying much attention here, I think that's still to come,” he said in an interview at the company's Toronto headquarters.

Inflationary expectations, US dollar weakness and the resulting pressure on the Fed to continue cutting interest rates aggressively would continue to boost investment demand for gold, he said.

“Also on the investment side, the countries that have significant US dollar reserves have got to consider gold...and if any of them do decide that gold makes sense to diversify their US dollar reserve base, then that could have a meaningful impact on the price.

“So I think there's a few more shoes to drop here...there's a lot of factors that are lining up here to see much higher prices.”

Agnico-Eagle is one of few companies which has never hedged any of its production, and Boyd intends to keep it that way.

"We have managed this company through the $250/oz gold price environment without a hedge book...we did that because we had low costs, we did that because we were very focused, so we continue to have well-below industry average costs and we continue to be very focused, and that's our best protection."

The company is able to keep costs below industry norms by selling byproducts like zinc and silver that it mines at its flagship LaRonde mine, in Quebec.

GROWTH PROSPECTS

Agnico-Eagle will continue to look for smaller, early-stage projects, with big exploration potential, Boyd said.

“And that's been very successful for us... we've done an acquisition in each of the last three years, and we collectively paid C$730-million for three projects that have current reserves of nine-million ounces, resources of four-million ounces, and all three of them are wide open,” he said.

The group has significant internal growth prospects, particularly at its Kittila mine in Finland, which is scheduled to begin output in September this year, as well as at the Pinos Altos project, in Mexico, where recent exploration results indicate potential for internally-generated opportunities to add to production, Boyd said.

"So we continue to look [for potential targets], but our success going forward is not contingent on doing another acquisition.”

FULL STEAM AHEAD

Agnico-Eagle, which expects to produce 1,3-million ounces of gold a year between 2010 and 2017, will begin production at its first new mine – Goldex, in Quebec – next month, followed by its start-up at Kittila, in September.

Goldex will be completed two months ahead of schedule, and in budget, largely because the company was able to tap synergies from its LaRonde mine, about 60 km away, and completed most of the lateral development itself, reducing its reliance on contractors.

At Kittila, the company is also conducting exploration below the main deposit, where drilling has suggested that the deposit may extend another 400 m, Boyd said.

If that was the case, the company would then need to contemplate additional infrastructure at some point, to access that tonnage.

“There's a lot more to come in terms of growing this deposit," he added.

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