Detour Lake in line for 2013 start-up

Detour Gold (DGC-T) says the Detour Lake open-pit mine in northeastern Ontario remains on budget and track for initial gold production in early 2013.

Construction at the project reached the 75% completion mark at the end of June. More importantly, Detour announced that a 230-kilovolt transmission line was connected to the grid on July 19. This allows the commissioned grinding mills to begin as scheduled before year-end, Gerald Panneton, Detour’s president and CEO, says in a statement.

The 230 kV transmission line to Pinard (Fraserdale Power Station) will provide more than the 85 megawatts of power needed to run the mine once in full production. The project had a 115 kV connection since last October. “This [230 kV] line was scheduled to be energized in [the last quarter] by Hydro One, and an early connection gives Detour more flexibility at site for pre-commissioning activities,” Haywood Securities’ analyst Kerry Smith writes in a note.

“The full connection of the power line to the grid alleviates supply concerns as the project advances toward commissioning,” BMO Capital Markets’ analyst John Hayes says in a brief note.

Most of the construction remaining at the project is within the process plant building, where Detour has more than 800 workers installing equipment and working on the mechanical, piping, electrical and instrumentation contracts.

There are 1,550 workers on site, including 279 Detour employees. The company expects to have 400 permanent employees by year-end.

Start-up cost estimates for the project remain at $1.45 billion, of which 67%, or $969 million, has been spent as of June, leaving $481 million to be spent.

Detour notes that $1.29 billion of the $1.45 billion has been committed, with 99% of all contracts awarded.  

With a cash balance of $576 million, Detour says it has enough on hand to fund the remaining project expenditures. It also plans to get a $100-million secured facility to cover any additional capital needs as it ramps up the mine.

“This facility will be required by year-end, and we believe Detour has several options available to fund this working capital, including bank debt and revenue from gold sales during pre-commissioning, which will likely be in the 100,000 oz. range,” Smith of Haywood says.

Pre-stripping operations are underway at Detour Lake’s Calcite zone, which is in the western portion of the deposit.

The Calcite zone is anticipated to provide initial ore for commissioning. The zone is 50 to 150 metres wide, with lower-grade mineralization at 0.8 to 0.9 gram gold per tonne, making it easy to mine. The project’s reserves have a grade of 1 gram gold.

The production rate at the zone has reached a peak of 120,000 tonnes per day. The company aims to have 3 million tonnes of ore averaging 0.85 gram in inventory before operations start.

Annual production at Detour Lake is anticipated to average 650,000 oz. gold over 22 years.

Hayes of BMO estimates life-of-mine production of around 14.1 million oz. at an average total cash cost of US$605 per oz. gold. He has a $35 target price and a speculative “outperform” rating on the stock.

Smith has a $39 target and “sector outperform” rating on the company. “Detour is making excellent progress in its constructive activities, and with the bulk of capex already committed, there is limited exposure to cost overruns.”