Positive feasibility study brings Detour Gold’s reserves to 11.4M oz.

A feasibility study on Detour Gold’s (DGC-T, DRGDF-O) Detour Lake gold project in northeastern Ontario has made it one of the largest gold operations in Canada and one of the largest investments in the province, company’s president and CEO Gerald Panneton said in a conference call on May 25.

According to the study, the company could build a 55,000- to 61,000-tonne-per-day open-pit mine at Detour Lake that would produce 649,000 oz. gold per year over 16 years, for an initial price tag of US$992 million.

The study updated the project’s reserves to 347.5 million tonnes grading 1.02 grams gold per tonne for 11.4 million oz. contained gold — a 30% increase from the 8.8 million oz. gold indicated in the prefeasibility study. In the measured and indicated categories, the deposit hosts 510.8 million tonnes at 1.08 grams gold for 17.7 million oz. gold. In the inferred category, the deposit has 133.6 million tonnes at 0.80 gram gold for 3.4 million oz. gold. The resource was based on a cutoff grade of 0.5 gram gold.

Panneton says the company plans to start project construction late this year after obtaining the necessary provincial permits and agreements with the Aboriginal communities. Panneton says he sees no hurdles in getting the agreements as the company maintains good relations with these communities, and would create about 500 jobs over 16 years.

At a base case gold price of US$850 per oz., the study calculated a pretax net present value at a 5% discount rate of US$1.03 billion with a pretax internal rate of return of 14.4%, with a payback period of 5.9 years. The mine is expected to generate $4.1 billion in pretax operating cash flow at US$850 per oz.

The study envisages the use of a conventional gravity, cyanidation and carbon-in-pulp processing facility at the project. The company says the metallurgy of Detour Lake is simple as the gold is mostly native which allows for good recovery. The overall gold recovery rate is 91.2%.

Average operating costs over the life of the mine are pegged at US$437 per oz. gold, with a strip ratio of 3.3-to-1. Average production costs for the first three years will be US$386 per oz. with gold production totaling 1.9 million oz. for the 3-year period.

With $308 million cash on hand, the company says it has enough to carry the development of the project through mid-2011. Detour would need US$580 million to sustain the project, of which nearly 65% would be spent in the first four years for mining fleet and tailings expansion.

The deposit sits in the Abitibi greenstone belt, 8 km west of the Ontario-Quebec border and 180 km northeast of Cochrane, Ont. Panneton says the project is “infrastructure supported” with a road to the project and access to the provincial electrical grid.  The company plans to build a 230-kilovolt-transmission line from the mine site to the Pinard Transformer Station near Fraserdale, Ont., by using the existing 135 km right of way connection to the power grid.

For the study’s database, it included drilling data from pre-Detour Gold programs and its previous drilling programs that took place in 2007, 2008, and 2009, which amounted to 880,991 metres of drilling in 5,853 holes. Detour drilled 334,452 of those metres.

The company is currently working on its 90,000-metre infill drilling program to expand the deposit to the west of the Calcite zone, 60,00 metres have been completed, with results from the first 11,000 metres showing significant gold mineralization. The deposit is open at depth and to the west.

On news of the positive feasibility study, Detour Gold’s shares jumped 42¢ to close the day at $21.37 on 1.3 million shares traded. The company has a 52-week trading range of $8.29-$24.65 and 70 million shares outstanding.