Detour Gold (DGC-T) and its shareholders have something to cheer about, as the junior gold explorer has graduated to producer after completing its first gold pour at the large Detour Lake mine in northeastern Ontario, a goal the company has been working towards for six years.
Located 185 km from the town of Cochrane and easily accessible via Highway 652, the open-pit operation is set to become Canada’s largest gold mine.
The firm produced its first four gold bars totalling 2,000 oz. on Feb. 18, following 26 months of construction.
“We are excited about what we have accomplished in six years from completing the acquisition of the property [on Jan. 31, 2007] to first gold pour,” Detour Gold president and CEO Gerald Panneton says. He says the firm is inching closer to “becoming Canada’s leading intermediate gold producer.”
Detour bought the Detour Lake property — which contains the former Detour Lake mine that produced 1.8 million oz. gold from 1983 to 1999 — for $75 million from Pelangio Mines in 2006, conditional on completing an initial public offering. The company listed on the Toronto Stock Exchange in January 2007, after issuing 10 million shares at $3.50 apiece.
From there, it launched an aggressive exploration program, driving 650,000 metres into the property. Most drilling focused on increasing the reserve count from zero to 15.6 million oz. gold by the end of 2011. Reserves are 470 million tonnes grading 1.03 grams gold per tonne and global resources stand at 29 million oz. gold.
Over the years Detour has raised over $1.5 billion in equity, as well as US$500 million in convertible notes to cover corporate expenses and most of the project’s development costs. It also consolidated the Detour Lake camp with the 2011 takeover of Trade Winds Ventures and the 2010 acquisition of Conquest Resources’ (CQR-V) properties near Detour Lake.
The property encompasses 566 sq. km and is in the northeastern corner of the prospective Abitibi greenstone belt. Apart from a 13 sq. km claim located 7 km east of the pit — where Detour is earning a 50% interest from Conquest and has started a 1,200-metre drill program — the company wholly owns the large property.
Following a May 2010 feasibility study, the Toronto-based firm commenced permitting activities and continued building relations with the First Nation communities in the area. In November that year, it received a green light to build the estimated $1.5-billion project.
Laurie Gaborit, Detour’s director of investor relations, says the producer’s main target for 2013 is to ramp-up the mine to achieve 55,000 tonnes per day by year-end.
“We have started the first production line and produced our first gold bars on Feb. 18. In March, we will start the second production line. We expect achieving commercial production [75% of throughput design for 60 days] in the third quarter,” she writes in an email.
For 2013, Detour Lake is slated to deliver between 350,000 and 400,000 oz. gold of pre-commercial and commercial production at total cash costs of US$800 to US$900 per oz.
Commercial production at Detour Lake in 2013 should equal 200,000 to 250,000 oz. gold, Kerry Smith of Haywood Securities notes.
“While this first gold pour itself is not that meaningful for a twenty-plus-year mine life, it is a significant achievement, as this mine moves towards commercial production in mid-2013,” he writes.
Output at the Detour Lake mine is forecast to average 657,000 oz. gold a year over a 21.5-year mine life. Total cash costs are estimated at $749 per oz., after royalty and silver credits.
The deposit, where most of the gold occurs within a stockwork of quartz veins, will be mined using conventional open-pit mining methods. The extracted ore will undergo a conventional gravity, cyanidation and carbon-in-pulp processing facility, operating at 55,000 tonnes per day before ramping up to 61,000 tonnes per day, possibly in the third operating year.
Overall gold and silver recoveries are estimated at 91% and 48%.
Sustaining capital for the mine is pegged at $1.2 billion, with $180 million budgeted for 2013, and another $140 million in 2014.
Smith says the company will likely need to secure a $90-million line of credit it was contemplating in the first half of 2013 to “provide a reasonable cash cushion as production ramps up at the mine.” He doesn’t expect Detour to encounter any problems.
Detour exited 2012 with $236 million in cash and short-term investments, noting at the time that it would be enough to cover the project’s remaining $120 million in construction costs and capital needs during the initial ramp-up.
As a safety net, it obtained a $45-million credit facility from BMO Capital Markets and CIBC in mid-January. It is pursuing another credit line to cover general expenses.
Along with entering commercial production at Detour Lake, another catalyst for the miner includes publishing a prefeasibility study on the Block A deposit, 1 km northwest of the open-pit mine. The study should be completed by year-end, followed by a reserve estimate for Block A in early 2014, Gaborit says.
On the exploration side, the miner is drilling 20,000 metres on a regional structure south of Detour Lake.
The company closed Feb. 21 at $19.46 within a 52-week range of $18.45 to $29.07. It has a $2.3-billion market capitalization.
Smith rates the stock as “sector outperform” and has a $42.25 target. John Hayes of BMO Nesbitt Burns has a $37 target and “outperform” rating.
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