August 2009

A conversation with Canada’s CFO of the Year

Agnico-Eagle’s David Garofalo shares his thoughts on a range of topics including working with investors, controlling costs and predicting commodity trends

By M. Paduada

In spite of constrained capital availability and risk-averse attitudes, some mining companies, and some people, are keeping busier than others. Perhaps one of the busiest is David Garofalo, senior vice-president, finance and CFO of Agnico-Eagle Mines Limited. Garofalo has been helping Agnico-Eagle steer through choppy economic waters towards ambitious expansion objectives. He was recently named Canada’s CFO of the Year, an award presented annually by Financial Executives International (FEI) Canada, PricewaterhouseCoopers LLP and The Caldwell Partners International. Given the broad award criteria — vision and leadership, corporate reporting and performance, social responsibility, innovation and business complexity — Garofalo has certainly accomplished quite the balancing act. During an investor and analyst site visit of the Kittilä mine in Finland in June, David shared some thoughts with CIM Magazine.

CIM: The opening of the Kittilä mine is very exciting. What are you trying to accomplish during these site visits?

Garofalo: It’s very helpful for me to bring investors and credit providers out to the mine site. What jumps out at people is how well-engineered, well-kept, safe and professionally run our mines are, and how cohesive our employee group is. You don’t see that looking at the financial model or speaking to executives at head office. I’ve found that doing site visits has always been a tremendous facilitator for financing, whether it’s banks, equity markets or debt markets.

CIM: Do site visits alleviate anxieties about risk better than a financial model would?

Garofalo: Absolutely. You get a sense of the scale and scope of operations when you’re on site. You can’t get that on paper in a financial model. Right now it’s a very tight credit market. In fact, I’d characterize it as very bifurcated. Good companies can still get money, though capital cost has gone up. Companies with single or undeveloped assets and companies that don’t have a history of building or operating mines probably can’t get any credit at all. So, having our scale and track record is a big advantage. That jumps out at you when you go out to sites and see what we have here. The cohesive employee group, the skill sets, the hundreds of engineers and geologists that we have on staff are a tremendous advantage that we can leverage to help showcase our operations to credit providers. Right now, we’re actually in the middle of expanding our credit facilities. It’s in syndication and is going well. The credit margins have widened, but we can still get money from banks.

CIM: Would you please explain Agnico-Eagle’s policy of not participating in gold forward markets? How does it work for you?

Garofalo: That’s a philosophical decision we made a long time ago. We think that investors in gold stock want to be exposed to the gold price — up and down. They want full beta to bullion. Our best hedge against falling gold prices is low-cost operations. We have low-cost operations because we have assets of significant scale. We reap economies of scale at the operational level and have a naturally low-cost structure. Also, because we essentially build our deposits out ourselves, our total costs tend to be lower. We have a much lower cost structure, even when you include recovery of your capital expenditures. That’s our hedge; that’s how we look at it.

CIM: One of the considerations for the CFO of the Year award is corporate social responsibility. How is a CFO positioned to deal with issues of corporate social responsibility?

Garofalo: It’s pretty fundamental. You really can’t raise capital unless you have a game plan for dealing with environmental reclamation and securing the social licence to operate in various communities. In this market, creditors and investors will not provide capital without ensuring responsibility in that regard. I’m acutely aware of what our corporate social responsibility programs are. Am I directly responsible for those programs? No, but I am responsible for ensuring they are communicated properly to capital providers.

CIM: There have been discussions lately, for example, in the Mining Finance and Management Day at the last CIM Conference and Exhibition, about mineral economics and education. In your view, how important are courses like mineral economics and accounting in mining-related university programs?

Garofalo: I think it is important because, at the end of the day, it’s not just about digging holes in the ground. It’s about extracting minerals on an economic basis and generating returns on investment. I think that’s been a criticism from investors in the past, because it’s such a capital-intensive business. Sometimes focus is lost on that return on investment. Having that integrated into engineering and technical programs makes a lot of sense.

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