Detour postpones production from West Detour pit until 2021

A request by one of Detour Gold’s (TSX: DGC) aboriginal partners to submit the company’s environmental study report for its West Detour gold project to the federal government, in addition to those at the provincial level, could mean that mining at West Detour will not begin in January 2018, as scheduled in the current mine plan.

The aboriginal group submitted its request to the Canadian Environmental Assessment Agency (CEAA), despite a CEAA ruling in 2015 that the West Detour project did not require a federal environmental assessment (EA). The CEAA has 45 days to consider the request.

West Detour is part of the company’s Detour Lake gold property in northeastern Ontario. The Detour open-pit mine went into commercial production in September 2013, and is one of the largest gold-producing mines in Canada.

Detour’s president and CEO Paul Martin told analysts and investors on a conference call that the West Detour project property resides under provincial jurisdiction, which is “a conclusion also made in 2015 by the federal government,” but added that “we also know that CEAA is now obliged to consider the request made, and this could take some time.”

The federal review takes twice as long (the provincial process typically takes one year compared to two to three years at the federal level), and the federal process would include more departments that are not familiar with the company’s operations, and would need to be consulted or educated, he added.

“All of this would add time to the federal process, but would not change the fundamental outcome,” he said. “The underlying environmental protections remain similar and both demand that the high environmental protection standards are respected. It is also worth noting that regardless of whether provincial or federal permitting processes are followed, both levels of government participate in each.”

Mining trucks in the pit at Detour Gold’s Detour Lake gold mine in northeastern Ontario. Credit: Detour Gold.

Given the uncertainty and timing, Martin noted, the company has concluded that “the only prudent course of action is to defer West Detour and prepare a mine plan that provides flexibility,” and that the “next best window for West Detour will be no earlier than 2021.”

Detour will release a life-of-mine plan before the end of March.

Brian Quast of BMO Capital Markets said in a research note that he did not consider a federal review of the EA to be a negative, “since the amended mine plan will most likely compensate for the West Detour production that has been deferred.”

He noted that “since the project as a whole has not changed significantly, the environmental impact to be assessed will be the incremental effect of West Detour and the North satellite pit.”

The analyst also pointed out that a 2011 comprehensive study report by the CEAA concluded that the Detour gold project would not likely cause adverse environmental effects.

During the conference call the intermediate gold producer also discussed its 2016 financial results. The Detour mine produced 537,765 oz. gold during the calendar year at all-in sustaining costs (AISCs) of US$1,005 per ounce. The mill put in a record performance, processing 20.8 million tonnes of ore — 1 million more tonnes than in 2015.

Detour also cut its debt by $142 million, finishing the year with $129 million in cash.

Martin said the company’s preliminary production guidance for 2017 is between 550,000 and 600,000 oz. gold at AISCs of US$1,025 to US$1,125 per oz. gold sold, while total cash costs could be between US$690 and US$750 per ounce.

The company updated its capital cost expenses for the Detour Lake mine, estimating between US$160 million and US$180 million, which includes US$78 million of mining equipment, inclusive of major component replacements; US$40 million for tailings construction; US$6 million for the processing plant, including the lead nitrate oxygen system; and US$31 million for infrastructure and corporate general and administrative expenses.

The Detour mine has a 23-year mine life based on an open-pit reserve of 16.4 million oz. gold (514 million tonnes grading 0.99 gram gold per tonne at a cut-off grade of 0.5 gram gold per tonne). The company says there is also exploration potential on the 625 sq. km property.

“Although we are disappointed with the permitting delay for West Detour, having the benefit of a large reserve base allows us to manage this schedule change,” Martin said.

At press time Detour was trading at $18.30 per share within a 52-week range of $15.36 per share (Dec. 20, 2016) and $35.93 per share (July 6, 2016). The company has 175 million shares outstanding.