Detour Gold projects US$844 million for open pit mine

Detour Gold (DGC-T) has finished a prefeasibility study for its Detour Lake Gold project in northeastern Ontario, outlining a plan to construct a 45,000-tonne per year open pit mine that would produce 560,000 oz. gold per year over 14.5 years.

But Detour president and CEO, Gerald Panneton, finished off a conference call defending the project’s seemingly low pre-tax internal rate of return.

“I know 13.5 per cent may not be the best rate of return that you would expect,” Panneton said. “In my experience of looking at many projects in the past, many low grade projects above 10 per cent are excellent, and there is opportunity in front of Detour Gold to improve the rate of return.”

Preproduction start-up costs were estimated at US$844 million, cash costs of US$404 per oz. and sustaining capital of US$417 million. Under the base case scenario, the study assumed a gold price of US$775 per oz. and a pre-tax net present value of US$621 million at a 5% discount rate.

Using a US$900 per oz. gold price, the project looked better with a pre-tax NPV of US$1.19 billion at a 5% discount and an IRR of 20.1%.

Panneton says the company will finish a feasibility study for the project by the end of the first quarter in 2010.

Detour may add to the 8.8 million-oz. gold reserves in that time (contained in 238.6 million tonnes grading 1.15 grams gold per tonne). Detour plans to add an additional 80,000 metres worth of drilling in that time to the 248,000 metres of drilling included in the study, which it has completed in less than three years. Detour will be doing infill drilling based on 40-metre spacing as well as trying to expand the deposit to the west of the Calcite zone.

The company will also work on optimizing mill through put by using a coarser grinding process and improving the tailings plan to save in capital and operating costs.

Detour plans to start ordering long-lead equipment this fall and to start project construction by mid 2010.

Construction is expected to take about 26 months with the plant commissioning to start in the last quarter of 2012.

Detour Gold shares fell nearly 9% today, or $1 to $10.55 per share on a trading volume of 1.1 million shares.