Detour Gold rallies on Q3 earnings news

The Detour Lake Mine in northern Ontario.

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Detour Gold Corp. [DGC-TSX] shares rallied Friday November 15 after the company reported better-than expected third quarter earnings, due primarily to lower production costs.

Detour posted adjusted earnings per share of US$35.5 million or 20 cents a share, which was well ahead of the consensus estimate of 15 cents, and compares to the adjusted net loss of US$1.5 million or $0.01 per share in the same period last year.

The company said total cash costs of US$730/oz were 9% below 2018 third quarter levels, while all-in sustaining costs (AISC) of US$1,198/oz, were 13% lower than the AISC in the 2018 third quarter.

Investors responded by sending Detour shares up 11.5% or $2.22 to $21.50 on active volume of 1.63 million. The shares are currently trading in a 52-week range of $9.55 and $25.45.

Detour Gold is an intermediate gold producer in Canada. It operates the large-scale Detour Lake mine in northern Ontario about 300 km northeast of the Timmins. The mine produced 621,128 ounces in 2018, down from the previous estimate of between 600,000 to 650,000 ounces.

Prior to the release of the 2019 third quarter results, Detour had been expected to produce between 570,000 and 605,000 ounces of gold this year at an all-in sustaining cost of between US$1,175 and US$1,250/oz.

However, the production guidance range has been tightened with the low end raised to 590,000 ounces and the top end staying steady at 605,000 ounces. Cash costs and all-in-sustaining cost guidance has been reduced by 5% and 6% respectively.

The revised guidance comes after Detour reported third quarter production of 137,670 ounces, compared to 151,402 ounces in the third quarter of 2018.

The Detour Lake operation has a mine life of approximately 22 years with an average gold production of 659,000 ounces annually, and includes the development of the West Detour project, which is currently being permitted.

The company’s management recently waged a battle with dissident shareholder (5%) Paulson & Co. Inc., which launched a bid last year to replace the company’s board with independent members committed to exploring the potential sale of the company.

The move resulted in significant changes at the board and management level following the resignation of former Detour CEO Paul Martin.

In an investment report, Scotiabank said the changes were necessary due to the lack of technical experience on the board, especially following the change in mine plan outlook in April, 2019 that seemed to indicate the board was caught unawares by the escalating cost forecasts.

In addition, Patrice Merrin was recently named chair of the board at Detour.

Merrin is best known for a previous role as Chief Operating Officer of Sherritt International Inc. [S-TSX] where she worked alongside Ian Delaney when the company embarked on a controversial nickel mining joint venture with the late Fidel Castro’s Cuban government. That was in the years between 1999 and 2004.

She is also an independent non-executive director of metals trading giant Glencore plc, Kew Media Group Inc., a producer and distributor of multi-genre content worldwide, and Samuel, Son & Co., a producer and distributor of metals and industrial products.

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