Detour Gold takeover speculation ramps up

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By Peter Kennedy

Detour Gold Corp. [DGC-TSX] is on an accelerated path to being taken over, writes Scotiabank analyst Trevor Turnbull in a research report.

The takeover speculation follows the recent resignation of former Detour CEO Paul Martin, and increased calls by some investors for a strategic review. That includes Paulson & Co, with a reported 5% stake, which said this week it would move forward to replace a majority of Detour’s board with independent members committed to exploring a potential sale of the company.

On July 18, 2018, letters filed on SEDAR confirmed a mining company had renewed its interest in making a potential offer for the company, a move that has coincided with a sharp increase in the company’s stock price to $13.80 on July 18, 2017, from $12.20 a day earlier.

However, on Thursday July 19, investors appeared to be playing a wait and see game, as the stock price fell slightly by 0.51% or $0.07 to $13.62.

Detour Gold is an intermediate gold producer in Canada. It operates the large-scale Detour Lake Mine in northern Ontario about 300 kilometres northeast of the Timmins.

Following Martin’s retirement on June 1, 2018, Michael Kenyon assumed the role of interim CEO, while Alex Morrison stepped into the role of Board Chairman.

As Chairman, the company said Morrison would bring more than 25 years of capital markets and mining operations experience to his new role, including past senior positions as Vice-President and Chief Financial Officer at Franco Nevada Mining Corp. [FNV-TSX], which owns a 2% net smelter return royalty, covering both the Detour open pit and West Detour locations. Morrison also served as Vice-President Operators Services at Newmont Mining Corp.’s [NEM-NYSE].

The company also said the board would be commencing a formal process to appoint a new CEO and expects the decision to be made no later than early 2019.

The management shakeup follows a recent dip in the share price that came on the heels guidance revisions announced in the company’s 2018 first quarter results.

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

The company said at the time it expected its all in sustaining costs to rise to between $1,200 and $1,280 an ounce this year, from the previous forecast of between $1,050 and $1,150.

Meanwhile, in a July 19, press release that is filed on SEDAR, Detour said it was addressing further “misleading statements by activist Paulson & Co.”

“Paulson is at it again, compounding its false and misleading statements to the market,” Detour said.

“The company did not disclose material information to Paulson because the company already had written evidence that Paulson was in possession of that precise information from a third party – it’s really that simple,” Detour said in the press release.

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