Detour: New Mine Plan Offers 'Best Value-Maximizing Alternative'
(Kitco News)- DetourGold Corp. (TSX: DGC) has updated the life-of-mine (LOM) plan for its DetourLake operation, making changes aimed at reducing large annual fluctuations inthe amount of gold that is mined but conceding some higher costs that werecontained in the previous plan.
However,the company’s chief operating officer also pledged to work on reducing thoseexpenses. And while Detour has said the new plan is the best way to createvalue for shareholders, one analyst said a statement in the company’s newsrelease also suggests that Detour would at least consider offers to be acquired.
Thecompany was the focus of extra attention recently when Paulson & Co, led by billionaire hedge-fund manager John Paulson,called for the underperforming Canadian miner to putitself up for sale, in part due to the lowstock price.
The company’s main asset is the Detour Lake Mine in northeasternOntario. Thecompany said the mine has proven and probable reserves of 16 million ounces ofgold, with a mine life of 22.6 years. Officials saidthey plan to implement a number of operational improvements.
“DetourGold is moving forward on an achievable plan to create long-term value for allof our shareholders, with whom we have always maintained an open dialogue. Our boardhas made important changes and is committed to making further changes, asnecessary, to ensure Detour Lake becomes a consistently profitable operation,”said Alex Morrison, board chairman. “With our new mine operating plan in placeand a team led by our new chief operating officer, Frazer Bourchier, to executeit, we are confident that we are on track to position the company as a leadingintermediate gold producer.”
Bourchierhas focused on the revised plan since joining Detour in January. The companyhas an interim chief executive officer - Michael Kenyon.
“Theimpact of the changes we are making will not be evident immediately, but weintend to deliver consistent execution under Frazer’s leadership,” Morrisonsaid.
Acompany news release described the plan as the “best value-maximizingalternative” currently available, but said the board also acknowledges that“change in our industry takes time.” Meanwhile, the release also left otheroptions open.
“Ifany bona fide strategic alternatives become available to the company thatcompete with the value delivered by this standalone plan, the board wouldpursue the best course of action to maximize shareholder value,” the pressrelease said.
Someanalysts said this phrase seems to indicate the company’s willingness to infact consider offers to purchase Detour.
“Webelieve that the DGC is referring to a sale process, as recently stronglysuggested by shareholder Paulson & Co.,” said Credit Suisse, while alsonoting that the company appears to have chosen optimization over a sale.
“DGCstated that the [board of directors] is committed to improve upon Detour Lake’spast operating performance and that the board believes new COO Frazer Bourchierand interim CEO Michael Kenyon ... have the necessary expertise to implement therevised LOM moving forward,” Credit Suisse said.
Meanwhile,BMO Capital Markets commented that the plan offers more clarity on annualcosts. Analysts said they envision updating their valuation following a conferencecall hosted by Detour this morning and a “teach-in” to answer questions onFriday.
Detour Aims To MakeAnnual Production More Consistent
Thecompany said the LOM reduces the large annual variation in projected goldproduction under the prior plan.
“Specifically,the gold production profile is more consistent over the next 12 years atapproximately 614,000 ounces per year and subsequently increases toapproximately 725,000 ounces per year for the next 10 years,” Detour said.
Averageannual life-of-mine gold production is expected to be approximately 659,000ounces at average total site costs of $843 per ounce sold. For the period from2019 to 2023, average annual gold production is seen at around 608,000 ouncesat average total site costs of $983 per ounce sold. The company estimateslife-of-mine capital costs of $2.5 billion, excluding deferred stripping. Theplan assumes a ramp-up in processing-plant capacity.
Comparedto the previous life-of-mine plan, Detour projected a 9% increase in averagemining unit costs over the mine’s life mostly due to lower truck haulageefficiency and more trucking hours, leading to higher diesel consumption andincreased mobile equipment maintenance costs. The company sees an 8% increasein average milling unit costs over the mine life primarily due to higheranticipated key reagent consumption (cyanide, sulfur dioxide and lead nitrate)and increased labor and maintenance costs. Detour also looks for a 16% increasein average general and administrative unit costs over the life of the minemainly due to higher site infrastructure costs for water management and siteservices, inflationary impacts and increased personnel on site.
However,the company projects total site costs per ounce sold will decline over the nextseveral years from an expected $1,179 in 2019 to $803 by 2023, with average for2018 through 2040 put at $843.
“Thecompany will continue to target unit cost reductions over the next five yearswith increased productivity through improved operational efficiency,” Bourchiersaid. As part of this, Detour is also assessing “automation opportunities” notcurrently included in the life-of-mine plan, he added.
By Allen Sykora
For Kitco News
Follow @AllenSykora
asykora@kitco.com Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.