A year ago Agnico-Eagle Mines Ltd.'s Meadowbank mine in Nunavut was producing more bad news than gold.
But after ending 2011 with a loss, Agnico just reported its third consecutive quarter of profits, surprising analysts with higher-than-expected production from its large, open-pit operation.
"Big beat on Q3 production and costs," Credit Suisse analyst Anita Soni wrote in a report after Agnico-Eagle results were published. "Meadowbank drives the beat, mine optimizations working."
According to chief executive officer Sean Boyd, it may not be the last surprise from the mine, which is Agnico's largest producer.
"We began the year with this plan that on paper looked good," Mr. Boyd said after the company reported record production of 110,988 ounces of gold at Meadowbank in the third quarter. The figure beat second-quarter production by 10 per cent and came after it mined higher grade pockets with greater success.
A secondary crushing unit at the mine helped it process about 11,000 tonnes of ore per day, the company said, compared with almost 10,000 tonnes per day put through the mill in the previous quarter.
"As it turned out we exceeded our expectations in terms of how many tonnes we could mine and process," said Mr. Boyd, a 27-year company veteran.
As recently as February, Agnico-Eagle was swimming in negativity. It had just written down close to half the value of Meadowbank, where it rewrote the mine plan to exclude marginal ounces from reserves as it cut back on booming costs. At the same time, it took a writedown for the forced shutdown at its star Goldex mine in Quebec.
Shareholders punished Agnico-Eagle for the string of bad news, driving the company stock down to a 52-week low of $31.50 in February. These days it is approaching $60 a share.
Agnico has grown from just one mine in 2005 to five today, and has been criticized by some for taking on too many growth projects simulteanously: it did six acquisitions in seven years.
It bought Meadowbank for $750-million in 2007, spending another $740-million on the project in preproduction and exploration.
The redesign at Meadowbank saw it cut back on how much gold it planned to extract from the mine over time, but it also meant increasing the rate of mining.
"We started the year with an expectation that Meadowbank was going to produce 70,000 to 75,000 ounces [of gold] per quarter on average and its turned out, based on the first nine months performance, that this may be an 80,000 to 90,000 ounzes per quarter" mine, Mr. Boyd said.
He attributed the success to a number of factors, including the availability of more equipment on site and the company's improved experience at working in remote parts of the country.
Meadowbank will enter a lower grade phase in its mine plan in the fourth quarter, but the company said the higher grade pockets will reappear occasionally in 2013 and for as long as four or five years.
Agnico is still in the process of analyzing its outlook for coming years, but Mr. Boyd suggested some of the resource taken out under the new mine plan may come back as a result of recent successes.
"Maybe we were using too severe of a cutting factor when we were putting our block model together and now we have to revisit that, which may mean that some of the resource that was taken out of the mine plan earlier this year, comes back in and allows us to extend the life," Mr. Boyd said. "So we are looking at a bunch of different things."