Detour secures funds to build mine

Detour Gold (DGC-T) is raising $240 million in equity to finish building its Detour Lake mine near Cochrane, Ont., in hopes of becoming “Canada’s largest gold mining operation,” states the company’s president and CEO, Gerald Panneton, in a release.

“We have nothing to worry about,” comments Laurie Gaborit, the company’s director of investor relations. “We are on budget, on schedule and we are sticking with that $1.45-billion capital cost estimate, and we are just over 48% built.”

With Detour Lake on track to start producing gold by early next year, Gaborit says, “as far as we are concerned there’s not a lot of risk because 98% of the engineering is done, almost all of the major contracts are signed. So there are very little chances of overrun.”

The company had increased total capital expenditure estimates twice last year, the latest being in November, when Detour Lake’s projected costs increased 13% over its previous estimate  as a result of higher indirect costs for construction. 

For the $1.45-billion capex, Detour has already committed $1.03 billion, of which it had spent $626 million as of last December.

To help fund the rest, Detour has announced that a group of underwriters led by BMO Capital Markets and CIBC have agreed to buy 8.6 million shares for $28 apiece, which amounts to proceeds of $240 million.

The company could rake in another $36.1 million if the underwriters choose to exercise an over-allotment option to purchase an additional 1.29 million shares. The deal is set to close around Feb. 14.

Detour says the financing, combined with cash on hand and the previously reported US$145-million CAT financing, should be enough to fire up the mine and continue exploration on the Lower Detour Deformation zone, where 20,000 metres of drilling is slated for the year.

Annual production at Detour Lake is anticipated at 645,000 oz. gold, but that estimate will likely increase with the recent bump in reserves and resources.

On Jan. 25, the day it announced the financing, the company also reported that reserves grew by 5% to 15.6 million oz. contained in 470 million tonnes grading 1.03 grams gold per tonne, based on a US$850-per-oz. gold price and a 0.5-gram gold cut-off.

Global measured and indicated resources jumped 13% to 23.3 million oz. from 678.8 million tonnes grading 1.07 grams gold. Another 208.5 million tonnes at 0.86 gram gold for 5.8 million oz. lie in the inferred category.

The boost in Detour Lake’s reserves came as a result of the company’s 2011 infill program, which included only 78% of the 86,644 metres drilled.

Detour’s CEO says the company will incorporate the remaining metres in a year-end reserve update.

Based on the new reserves, the mine’s life grew by one year to 22, while mill throughput would range from 55,000 to 61,000 tonnes per day. Estimated recoveries average 95%. The stripping ratio decreased by 8% to 3.6-to-1 thanks to the conversion of waste and inferred resources to reserves. 

Once operating, the mine should take six to 12 months to ramp up, reaching about 50,000 tonnes per day by the end of 2013.

An updated mine plan using the same engineered pit but the new reserve base is expected in the third quarter, along with projected operating costs. 

Meanwhile, Detour will examine the potential of further expanding the mine’s annual production through organic growth. The company completed a throughput study last year and found that at a US$1,200-per-oz. gold price, the processing rate could be optimized at 75,000 tonnes a day.

It recently launched a prefeasibility study on the nearby Block A property to assess whether the near-surface resource could be economically mined to provide additional feed for the mill. That study should be done in late 2012. The company scooped up Block A through last year’s $84-million acquisition of Trade Winds
Ventures.

It recently kicked off a 50,000-metre program on that property to drill below the current resource of 2.7 million oz. grading 0.86 gram gold per tonne. A feasibility study is set for 2013. 

Detour says that after Block A, its next priority would be to evaluate near its processing plant high-grade targets that could potentially become additional ore sources.

Along with the Trade Winds acquisition that consolidated the Detour Lake camp, the company’s other 2011 highlights include: receiving an environmental nod from the federal government in December; connecting the project site to the Ontario power grid in October; and raising $428 million in August, after reporting its first capital cost increase for the project.

On the financing and updated reserves news, Detour shares gained $1.80 to close at $28.40 apiece, within a 52-week trading range of $23.03 to $39.65