Detour Gold Reports Second Quarter 2019 Results

 

TORONTO, July 30, 2019 /CNW/ - Detour Gold Corporation (TSX: DGC) ("Detour Gold" or the "Company") reports its operational and financial results for the second quarter of 2019. All amounts are in U.S. dollars unless otherwise indicated.

This release should be read in conjunction with the Company's second quarter 2019 Financial Statements and MD&A on the Company's website or on SEDAR. All references to non-IFRS measures are denoted with the superscript "0" and are discussed at the end of this news release.

Q2 2019 Highlights

• Safety metrics improving with a decline in the total recordable injury frequency rate ("TRIFR") to 1.66 for both employees and contractors
• Gold production of 150,079 ounces
• Block model continues to show strong positive reconciliation from ore mined to mineral reserves for the last 18 months
• Total cash costs^o of $793 per ounce sold
• All-in sustaining costs^o ("AISC") of $1,143 per ounce sold
• Revenues of $202.0 million on gold sales of 153,748 ounces at an average realized price^o of $1,309 per ounce
• Debt repayment of $50 million
• Net earnings of $16.0 million ($0.09 per basic share) and adjusted net earnings^o of $11.3 million ($0.06 per basic share)
• Cash and cash equivalents of $203.4 million at June 30, 2019
• Free cash flow^o of $51.6 million
• Net cash^o of $3.4 million
• Closure Plan amendment for Detour Lake mine submitted to the government in June 2019
• TMA Cell 2 construction continues according to plan

Mick McMullen, President and Chief Executive Officer, stated: "The second quarter was a good operational quarter for the Company where we continued to deliver on guidance and look for improvements within the business.  The full impact of the recent rise in the gold price had a limited impact on the Company's financials for the second quarter and yet we delivered solid cash flows for our shareholders.

The continuing strongly positive block model reconciliation trend has provided additional flexibility, which is to slow down mining rates as more waste tonnes are converted to mill feed while still able to maintain the mill at current maximum capacity. We are currently working towards assessing the long-term potential benefit of this positive trend seen over the last 18 months.

We welcomed Jaco Crouse as our new Chief Financial Officer and have promoted David Londono as our new Mine General Manager. Along with the appointment of Patrice Merrin as Board Chair, our team is now positioned to provide strong leadership and governance going forward."

Q2 2019 Operational Results

• Safety metrics improving with a decline in the TRIFR to 1.66 for both employees and contractors. The Company has launched a Learning Management system to support the operating departments and re-deployed key support personnel to improve training and safety in the field.
  
  
• Gold production totaled 150,079 ounces in the second quarter.
  
  
• Mill throughput was 5.4 million tonnes (Mt) despite two planned shutdowns in April and June (only quarter with two planned shutdowns).
  
  
• Head grade averaged 0.93 grams per tonne (g/t) with recoveries improving to 92.8%. The significant improvement in recovery is the result of completed and ongoing capital projects at the processing plant combined with better operating practices and a more uniform feed from fragmentation work in the pit.
  
  
• A total of 26.9 Mt (ore and waste) was mined in the second quarter (equivalent to mining rates of 296,000 tpd). As a result of the positive block model reconciliation, which has resulted in approximately 20% more ore tonnes at slightly higher grade mined than the mineral reserves in the first half of 2019, there is no need to move as many waste tonnes. In early July, the Company parked one of its CAT 6060 shovels and now plans to mine between 105 to 108 Mt for the year with no negative impact on gold production.
  
  
• Run-of-mine stockpiles of 5.2 Mt grading 0.64 g/t (approximately 107,000 ounces) at the end of the second quarter, relatively unchanged from the prior quarter.

Detour Lake Operation Statistics

 

• Unit costs for mining in the second quarter mainly reflected slightly lower mine output, higher costs for explosives to obtain better fragmentation, and longer cycle time to haul waste material to the tailings management facility ("TMA").
  
  
• Unit costs for milling in the second quarter reflected lower milling consumables as a result of fragmentation improvements (i.e. better crushing and grinding performance, and higher recovery), lower labour costs, and favourable electricity prices.
  
  
• Unit costs for G&A and other in the second quarter reflected higher payments to Indigenous communities than the prior year. Starting in 2019, certain costs relating to the Company's agreements with Indigenous communities are predominantly gold price linked. Going forward, these costs are expected to show more variability, in line with the U.S. dollar gold price.

Q2 2019 Financial Review

• Revenues for the second quarter were $202.0 million on the sale of 153,748 ounces of gold at an average realized price^o of $1,309 per ounce. The Company revisited the minimum closing inventory balance and optimized the delivery cycle to reduce inventory balance to a minimum, which resulted in an incremental cash flow of $18.6 million for the quarter.
  
  
• Cost of sales for the second quarter totaled $168.4 million, including $45.0 million of depreciation.
  
  
• Total cash costs^o were $793 per ounce sold in the second quarter.
  
  
• AISC^o were $1,143 per ounce sold in the second quarter. AISC are expected to be higher in the third quarter due to timing of the TMA Cell 2 construction and the decision to delay planned component replacements on the mobile fleet into the third quarter based on longer component life.
  
  
• Sustaining capital expenditures totaled $44.9 million for the second quarter, including $12.7 million of deferred stripping. The expenditures included $11.3 million for mining (mainly for major component replacements for the mobile fleet and other equipment), $2.3 million for the processing plant, $15.9 million for the ongoing construction of the TMA, and $2.7 million for site infrastructure.
  
  
• Earnings from mine operations for the second quarter totaled $33.6 million.
  
  
• Net earnings for the second quarter were $16.0 million ($0.09 per basic share). Adjusted net earnings^o in the second quarter amounted to $11.3 million ($0.06 per basic share) with the largest part of the difference attributable to the reversal of foreign exchange gains on tax balances.

Liquidity and Capital Resources

• As at June 30, 2019, the Company had $203.4 million of cash and cash equivalents, after repaying $50 million of principal against its revolving credit facility, reducing the outstanding principal balance to zero. The Company's only outstanding debt is its term loan of $199.7 million with a maturity date of July 2020. The Company is in active discussions with syndicate lenders to optimize the overall credit facility.

Financial Risk Management

The Company has established financial risk management programs for its gold sales, Canadian dollar expenditures, and diesel fuel requirements for 2019 and 2020. These programs are in place to help protect the margin on a portion of the Company's gold production and sales. As at June 30, 2019, the Company has the following outstanding positions:

• 405,000 ounces of zero-cost Asian gold collars, of which 111,000 ounces are denominated in Canadian dollars, on 45% to 50% of the Company's remaining 2019 and 2020 gold sales. The U.S. dollar denominated Asian gold collars protect an average floor price of $1,269 per ounce with participation up to an average ceiling price of $1,452 per ounce. The Canadian dollar denominated Asian gold collars protect an average floor price of C$1,743 per ounce with participation up to an average ceiling price of C$2,009 per ounce. The Canadian dollar denominated gold collars lock in the correlation between U.S. dollar denominated gold prices and the U.S./Canadian dollar exchange rate. The Asian gold collars mature monthly throughout each quarter over 2019 and 2020. Asian collars are low volatility and are only exercised when the strike price is above or below the average LBMA PM fix for the month of maturity. The impact of daily spikes or declines in prices are therefore muted through averaging. The hedges are settled net in cash.
  
  
• $282 million of zero-cost European collars whereby the Company can sell U.S. dollars at an average rate of 1.29 and can participate up to an average rate of 1.36. These zero-cost European collars with a weekly maturity expire throughout the remainder of 2019 and first half of 2020. The 111,000 ounces of Canadian dollar denominated Asian gold collars noted above provide protection against margin fluctuations over the second half of 2020 and therefore the Company did not take out any additional foreign exchange hedges. The coverage ratio is ~65% of the Company's remaining 2019 Canadian dollar exposure and 30% for 2020. The hedges are settled in cash.
  
  
• 30 million litres of heating oil SWAP contracts at an implied average dye diesel price of C$0.85 per litre for 2019 and C$0.80 per litre for 2020 to hedge against dye diesel exposure. The SWAP contracts mature monthly and represent approximately 50% and 10% of the Company's dye diesel consumption for the remainder of 2019 and 2020, respectively. The SWAP contracts settle net in cash.
  
  
• In July 2019, the Company added 15,000 ounces of Canadian dollar denominated zero-cost Asian gold collars which protect an average floor price of C$1,825 per ounce with participation up to an average ceiling price of C$2,016 per ounce for the fourth quarter of 2020. In addition, the Company added a total of 7.8 million litres of heating oil SWAP contracts denominated in Canadian dollars at an implied average dye diesel price of C$0.80 per litre for 2020. These agreements settle net in cash.

Selected Financial Information                

 

Exploration Activities

• In the second quarter of 2019, the Exploration department started a large 120,000 metres core resampling program of the Detour Lake deposit, as part of the block model work underway.
  
  
• Final assays were received for the winter drilling program in the Lower Detour area. Several drill holes encountered similar alteration and mineralization to Zone 58N.
  
  
• The Company expects to start a 5,000 metre drilling program in the Lower Detour area in early August.

2019 Outlook

The guidance for 2019 remains unchanged.

 

• Following the results from the first half of the year, we are expecting to meet the higher end of the guidance for gold production and the lower end of the guidance for AISC^o. The total tonnes mined for 2019 has been revised to 105-108 Mt versus the guidance of 115 Mt, as a result of the positive block model reconciliation (refer to Q2 2019 Operational Results above).
  
  
• Unit mining costs expected to remain higher than projected as a result of the lower mine output now planned and higher blasting costs associated with the fragmentation project.
  
  
• Processing costs expected to benefit from the finer feed product from the fragmentation project with anticipated lower consumables costs.
  
  
• Mill recovery expected to be at the higher end of the guided range of 90.5-91.5% for the year.
  
  
• The Company has also evaluated capital expenditures for the remainder of 2019 and plans to defer approximately $6 million of projects to 2020. The Company expects to remain within guidance of $80-90 million for the TMA capital expenditures.
  
  
• The Company continues to focus on improving grade control, mining practices, mobile fleet availability, reducing unplanned downtime and optimizing the short-term mine plan.
  
  
• The Closure Plan amendment for the Detour Lake mine was submitted in June 2019.
  
  
• The Company plans to file the final Environmental Study Report for the West Detour project in the third quarter of 2019.

Conference Call  

The Company will host a conference call and webcast at 10:00 AM ET on Wednesday, July 31, 2019. Access to the conference call is as follows:

• Via webcast, go to www.detourgold.com and click on the "Q2 2019 Results Conference Call and Webcast" link on the home page
• By phone toll free in North America 1-800-319-4610
• By phone Toronto local and internationally 416-915-3239

A playback will be available until August 31, 2019 by dialing 604-674-8052 or 1-855-669-9658 within Canada and the United States, using pass code 3379. The webcast and presentation slides will be archived on the Company's website.

Technical Information

The scientific and technical content of this news release was reviewed, verified and approved by David Londono, Mine General Manager, a Qualified Person as defined by Canadian Securities Administrators National Instrument 43-101 "Standards of Disclosure for Mineral Projects."

About Detour Gold

Detour Gold is a mid-tier gold producer in Canada that holds a 100% interest in the Detour Lake mine, a long life large-scale open pit operation. Detour Gold's shares trade on the Toronto Stock Exchange under the trading symbol DGC.

 

Detour Gold Corporation, Commerce Court West, 199 Bay Street, Suite 4100, P.O. Box 121, Toronto, Ontario M5L 1E

Non-IFRS Financial Performance Measures (^o)
The Company has included certain Non-IFRS measures in this document with no standard meaning under International Financial Reporting Standards ("IFRS"): total cash costs, all-in sustaining costs (AISC), unit costs, average realized gold price and average realized margin, adjusted net earnings, adjusted net earnings per basic share, free cash flow and net cash/debt. Refer to Non-IFRS Financial Performance Measures in the Company's Q2 2019 MD&A for further information.

The Company believes that these measures, in addition to conventional measures prepared in accordance with IFRS, provide investors an improved ability to evaluate the underlying performance of the Company. The non-IFRS measures are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. These measures do not have any standardized meaning prescribed under IFRS, and therefore may not be comparable to other issuers.

Unit costs

Detour Gold reports the following unit costs:

Mining unit costs: calculated as mining costs divided by total tonnes mined (ore+waste).
Processing unit costs: calculated as processing costs (including bullion delivery and refining) divided by total tonnes milled.
G&A and other unit costs: calculated as site G&A and other costs, which includes costs related to agreements with Indigenous communities divided by total tonnes milled.

All-in sustaining costs

The Company believes this measure more fully defines the total costs associated with producing gold. The Company calculates all-in sustaining costs as the sum of total cash costs (as described below), share-based compensation, corporate general and administrative expense net of corporate depreciation and other non-sustaining costs, exploration and evaluation expenses that are sustaining in nature, reclamation cost accretion, sustaining capital including deferred stripping, realized gains and losses on hedges due to operating and capital costs, all divided by the total gold ounces sold to arrive at a per ounce figure.

Total cash costs  

Detour Gold reports total cash costs on a sales basis. Total cash costs include production costs such as mining, processing, refining and site administration, agreements with Indigenous communities, less share-based compensation and net of silver sales divided by gold ounces sold to arrive at total cash costs per gold ounce sold. The measure also includes other mine related costs incurred such as mine standby costs and current inventory write downs. Production costs are exclusive of depreciation and depletion. Production costs include the costs associated with providing the royalty in-kind ounces.

All-in sustaining costs and total cash costs do not have any standardized meaning whether under IFRS or otherwise and therefore may not be comparable to other issuers. Accordingly, other companies may calculate these measures differently as a result of differences in underlying principles and policies applied. Differences may also arise to a different definition of sustaining versus non-sustaining capital. These measures are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS.

 

Average realized price and Average realized margin

Average realized price and average realized margin per ounce sold are used by management and investors use these measures to better understand the gold price and margin realized throughout a period.

Average realized price is calculated as metal sales per the statement of comprehensive earnings (loss) and includes realized gains and losses on gold derivatives, less silver sales. Average realized margin represents average realized price per gold ounce sold less total cash costs per ounce sold.

 

Adjusted net earnings (loss) and Adjusted basic net earnings (loss) per share

Adjusted net earnings (loss) and adjusted basic net earnings (loss) per share are used by management and investors to measure the underlying operating performance of the Company. Presenting these measures from period to period helps management and investors evaluate earnings trends more readily in comparison with results from prior periods.

Adjusted net earnings (loss) is defined as net earnings (loss) adjusted to exclude specific items that are significant, but not reflective of the underlying operations of the Company, including: the impact of foreign exchange gains and losses, unrealized and non-cash fair value gains and losses of financial instruments, accretion on long-term debt, impairment provisions and reversals thereof, and other unusual or non-recurring items (such as contractual severance/retirement payments for changes in senior management and proxy contest costs). The tax effect of adjustments, as well as the deferred tax impact of foreign exchange translation on non-monetary assets, is presented in the income and mining tax adjustments line.

Adjusted basic net earnings (loss) per share is calculated using the weighted average number of shares outstanding under the basic method of earnings per share as determined under IFRS.

 

Free Cash Flow

Free cash flow is calculated as cash flow from operations less cash flow from investing activities. It provides useful information to management as an indicator of the cash generated from the Company's operations before consideration of how those activities are financed.

 

Net Cash/Debt

Net cash (debt) is comprised of the face value of the Company's long-term debt less cash and cash equivalents. The Company believes that, in addition to conventional measures prepared in accordance with IFRS, certain investors use this information to evaluate the Company's financial position and its ability to take on new debt in the future, purchase new assets or withstand adverse economic conditions.

 

Additional IFRS Financial Performance Measures
The Company has included the additional IFRS measure "Earnings from mine operations" in the news release. The Company believes that this measure provides useful information to investors as an indication of the Company's principal business activities before consideration of how those activities are financed, sustaining capital expenditures, corporate administration expense, exploration and evaluation expenses, loss on disposal of assets, finance income and costs, and taxation.

Cautionary Note regarding Forward-Looking Information
This news release contains certain forward-looking information and forward-looking statements, as defined in applicable securities laws (collectively referred to herein as "forward-looking statements"). Forward-looking statements reflect current expectations or beliefs regarding future events or the Company's future performance. All statements other than statements of historical fact are forward-looking statements.  Often, but not always, forward-looking statements can be identified by the use of words such as "plans", "expects", "is expected", "budget", "scheduled", "estimates", "continues", "forecasts", "projects", "predicts", "intends", "anticipates", "targets" or "believes", or variations of, or the negatives of, such words and phrases or state that certain actions, events or results "may", "could", "would", "should", "might" or "will" be taken, occur or be achieved.

Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the Company's actual results, performance or achievements to differ materially from those expressed or implied by such forward-looking statements. All forward-looking statements, including those herein are qualified by this cautionary statement.  Accordingly, readers should not place undue reliance on forward-looking statements. The forward-looking statements in this news release speak only as of the date of this news release or as of the date or dates specified in such statements.

Specifically, this news release contains forward-looking statements regarding items including, but not limited to:   2019 gold production of between 570,000 and 605,000 ounces; 2019 total cash costs of between $790 and $840 per ounce sold; AISC of between $1,175 and $1,250 per ounce sold; AISC in the third quarter of 2019; 2019 total capital expenditures of between $190 to $210 million; and component replacement on the mobile fleet.

Inherent in forward-looking statements are risks, uncertainties and other factors beyond the Company's ability to predict or control.  These risks, uncertainties and other factors include, but are not limited to, the results of the life of mine plan ("2018 LOM Plan"), gold price volatility, changes in debt and equity markets, the uncertainties involved in interpreting geological data, increases in costs,  environmental compliance and changes in environmental legislation and regulation, support of the Company's Indigenous communities, interest rate and exchange rate fluctuations, general economic conditions and other risks involved in the gold exploration, development and production industry, as well as those risk factors listed in the section entitled "Description of Business - Risk Factors" in Detour Gold's Annual Information Form for the year ended December 31, 2018 ("AIF") and in the continuous disclosure documents filed by Detour Gold on and available on SEDAR at www.sedar.com. Readers are cautioned that the foregoing list of factors is not exhaustive of the factors that may affect forward-looking statements. Actual results and developments and the results of the 2018 LOM Plan are likely to differ, and may differ materially or materially and adversely, from those expressed or implied by forward-looking statements, including those contained in this news release. Such statements are based on a number of assumptions which may prove to be incorrect, including, but not limited to, assumptions about the following: the availability of financing for exploration and development activities; operating and capital costs; results of operations; the Company's available cash resources; the Company's ability to attract and retain skilled staff; the mine development and production schedule and related costs; dilution control; sensitivity to metal prices and other sensitivities; the supply and demand for, and the level and volatility of the price of, gold; timing of the receipt of regulatory and governmental approvals for development projects and other operations; the timing and results of consultations with the Company's Indigenous partners; the supply and availability of consumables and services; the exchange rates of the Canadian dollar to the U.S. dollar; energy and fuel costs; required capital investments; estimates of net present value and internal rate of returns; the accuracy of mineral reserve and mineral resource estimates, production estimates and capital and operating cost estimates and the assumptions on which such estimates are based; market competition; ongoing relations with employees and impacted communities and general business and economic conditions; and general business and economic conditions.

The Company undertakes no obligation to update publicly or otherwise revise any forward-looking statements whether as a result of new information or future events or otherwise, except as may be required by law. If the Company does update one or more forward-looking statements, no inference should be drawn that it will make additional updates with respect to those or other forward-looking statements.

SOURCE Detour Gold

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