Detour Gold shares down 28% on revised guidance news

The Detour Lake Mine in northern Ontario.

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The Detour Lake Mine in northern Ontario. Source: Detour Gold Corp.

Detour Gold Corp. [DGC-TSX] shares took a big drop Friday April 27 as investors reacted to guidance revisions announced in the company’s 2018 first quarter results.

The shares plunged 28.7% or $4.14 to $10.26 in late morning trading Friday. The volume of 6.65 million shares made Detour Gold the most actively trading stock on the TSX on Friday morning.

Detour Gold operates the large scale Detour Lake Mine in northern Ontario about 300 km northeast of Timmins.

Detour had previously guided investors to anticipate 2018 gold production of between 600,000 to 650,000 ounces. But the company now says it expects to produce between 595,000 and 635,000 ounces this year.

The company also said it expects its all-in sustaining costs to rise to between US$1,200 and US$1,280/oz this year, from the previous forecast of between US$1,050 and US$1,150/oz.

The company said 2018 gold production and all in sustaining costs were revised to reflect the following:

  • Anticipated mine sequencing changes for the revised life of mine plan
  • Projected lower mill throughput
  • Actual and anticipated higher operating costs and additional capital expenditures.

Detour has been evaluating the opportunity to improve the near-term gold production and cash flow profile of the Detour Lake operation by accelerating access to the higher grades scheduled to be processed in 2021 and 2022 under a life-of-mine plan issued in March 2017.

Based on the company’s assessment, the revised mine plan increases gold production in 2019 and 2020 by approximately 50,000 ounces each year, thereby smoothing the projected gold production over the period 2019 to 2023 to an average of 600,000 ounces annually and substantially reducing the large variation in production under the 2017 life of mine plan.

However, despite achieving the primary objective of this assessment, the benefits are diminished as a result of two factors:

During the review of the cost model from the 2017 life-of-mine plan, management determined that some of the operating cost and capital expenditure assumptions needed to be increased and the quantum of anticipated operating and maintenance improvements needed to be slightly reduced. These changes reflect new insights derived from recent operational experience, some ongoing relevant benchmark comparisons and the company not achieving its unit cost objectives for 2017.

As one of the company’s aboriginal communities has not yet expressed its support for the Environmental Study Report filed in January 2017 for the West Detour project, management has now determined that greater permitting flexibility is appropriate and has therefore rescheduled the North pit development and any impact on Walter Lake to 2026. This delay is resulting in the deferral of approximately 150,000 ounces to beyond the 2019 to 2023 period. The development of the West Detour pit remains in 2025.

Gold production in the first quarter was 157,141 ounces, helping to generate net earnings of $9.9 million [$0.06 per basic share], on revenue of $201.4 million.

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