Detour Lake Mine To Cost US$844M

Detour Gold (DGC-T, DRGDF-O) has finished a prefeasibility study for its Detour Lake gold project in northeastern Ontario, outlining a plan to build 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 on Sept. 9 defending the seemingly low pretax internal rate of return (IRR) on the project, 180 km northeast of Cochrane and 8 km from the Ontario- Quebec border.

“I know 13.5 percent 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 percent are excellent, and there is opportunity in front of Detour Gold to improve the rate of return.”

Preproduction startup costs were estimated at US$844 million, total cash costs at US$420 per oz. and sustaining capital at US$417 million. The high capital costs were attributed to the tailings and maintaining the mining fleet — the company expects to be using 28 trucks at the project’s peak.

Under a base-case scenario that assumed a gold price of US$775 per oz., the study calculated a pretax net present value (NPV) of US$621 million at a 5% discount rate.

At US$900 per oz. gold, the project looks better, with a pretax NPV of US$1.19 billion and an IRR of 20.1% at a 5% discount.

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

Detour may add to the 8.8-million- oz. gold reserve (contained in 238.6 million tonnes grading 1.15 grams gold per tonne) during that time. The company plans to drill another 80,000 metres before then in addition to the 248,000 metres considered in the study. 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.

In hopes of trimming capital and operating costs, the company will also work on optimizing mill throughput by using a coarser grinding process, and improving the tailings plan.

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 plant commissioning to start in the last quarter of 2012.

Detour Gold shares recently traded at $11.86 in a 12-month range of $2.86-13.94. The company has 49.6 million shares outstanding.