Featured Article June 19, 2013:

Detour Gold appears an exceptional buy as it ramps-up to commercial gold producer status (expected ~Q3 2013), Detour Lake will become Canada’s largest operating gold mine

On track to be Canada's LARGEST operating gold mine at 100% owned Detour Lake property, northeastern Ontario

• Projected average annual gold production of approximately 657,000 ounces.

• Open pit gold reserves of 15.6 million ounces; 21.5 years mine-life.

• Large resource growth potential on prospective 566 km2 property.

• Stable, mining friendly region & highly experienced management.

Notes from the editor:

Valuation Commentary: Detour Gold Corporation (TSX: DGC) (US Listing: DRGDF) is now in development ramp-up mode at its flagship asset, the Detour Lake Mine, located in the mining-friendly territory of northeastern Ontario. With more than 15.6 million ounces in reserves and excellent growth potential, Detour Lake is on track to become Canada’s largest operating gold mine with an astounding projected average annual gold production of approximately 657,000 ounces.

Taking a mammoth-size open-pit mine into production is a non linear step-up function fraught with development challenges, but nothing a skilled technical team and money can’t solve. Detour Gold started its first production line on Jan. 12 and stepped-up from there. Detour Gold has revised its 2013 production outlook to between 260,000 ounces and 320,000 ounces of gold to reflect a slower ramp-up than expected at the Detour Lake mine. Postcommercial production, total cash costs are expected to be between $800 per ounce and $1,000 per ounce for 2013. The ramp-up of the Detour Lake mine is progressing with mill throughput and availability improving from the first quarter. In the first week of May, the processing plant recorded several days at a milling rate of between 40,000 tonnes and 50,000 tonnes per operating day. Capital cost-wise DGC was ~20% over budget from what was expected in the feasibility (not bad considering to size of the project)... 

THE FINAL FINANCING SMACK-DOWN: Mining companies always seem to get beaten-up around financings -- each has its own nuances and there are a number of scenarios; DGC has never issued warrants in past financings and was spared that hardship when it found itself needing to approach the markets one last time (often the underwriter approaches the same sources for the private placement that were already invested in the subject company to start with, some of these investors smell blood and want to participate without committing new capital so they unload some of their current shares of the company into the market so they can swap them for new shares in the private placement and get free warrants in the process). Even if that is not the case with DGC, no one likes dilution, everyone saw this coming and DGC has been hit; on May 21, 2013 Detour Gold announced a C$153 million bought deal offering via the sale of 17.5 million shares at $8.75 a share (the shares were priced at a healthy discount to the then trading price of $9.23). The financing was organized a few days after the stock hit a six-month low -- the financing closed as planned on June 11, 2013. In a release, Detour said that it “intends to use the net proceeds of the offering for working capital during the ramp-up of the Detour Lake mine and for general corporate purposes.” Similar language was used in early January when Detour raised $113.95-million. Back then Detour said that “the company intends to use the net proceeds of the offering for working capital during the ramp-up of the Detour Lake mine and for general corporate purposes.” Between that financing and the May 21 financing, Detour also closed a $135-million senior secured credit facility made up of a $90-million revolver and a $45-million letter of credit facility. At the time, Detour said that the facility is “for a tenor of three years and is available for working capital during the ramp-up period, financial assurance and general corporate purposes.” Accordingly about $400-million has been raised for activities all of which include the ramp-up period. Unfortunately for the Company the share price has taken a hit in the process, however in DGC's case this literally should be the last kick at the dilution can to complete the ramp-up and get to where it needs to be.

THE RECOILED SLINGSHOT: After the smack-down the reality is that the projected production numbers when fully ramped-up are truly astounding and the market cap valuation (~C$1.17 billion as of May 23) of DGC relative to its inherent value is disproportionate, especially considering it is now fully capitalized to achieve full production and its future is secure (even if we get a lower gold price; the feasibility was done at a time when gold was $850/oz gold and costs were $209/oz, you can throw that all out the window now as costs across the sector are higher, it is better to look at 'cut of grade', which has not changed, still at 0.5 g/t -- this makes DGC's mammoth open pit operation 'high margin' comparatively to others) -- in short, DGC is on sale and in recoiled slingshot mode. There has been a sector-wide pullback in mining equity shares, DGC has been smacked-down to the point we feel it represents the best opportunity in the precious metals sector. DGC with ~138,018,791 shares outstanding (~159.1M fully diluted) provides an ideal vehicle for investors seeking exposure to precious metals.

Detour Gold Corporation (TSX: DGC)
     

       Detour Gold Corporation (TSX: DGC) (US Listing: DRGDF) (Frankfurt: D8M) has a single asset – its 100% owned Detour Lake property that exceeds 566 km2 located in northeastern Ontario, a region with a long mining history, experienced labour force, good infrastructure and a government that recognizes the value of the mining sector.
 
Detour Gold started gold production at its Detour Lake Mine in February 2013. Currently, Detour Lake contains an open pit mineral reserve of 15.6 million ounces of gold using a cut-off grade of 0.5 g/t. Once fully operational, the mine is projected to produce an average of 657,000 ounces of gold annually over a period of 21.5 years.
 
Detour Gold continues exploring its prospective large land holdings. At the Detour Lake deposit itself, the mine life could potentially be extended as the deposit is open along strike to the west and at depth. Historically, no significant exploration and drilling have been done outside of the Detour Lake gold mine and the Block A gold deposit. On the Block A project, located approximately 1 kilometre northwest of Detour Lake, the Company is currently carrying out a pre-feasibility study, which is expected to be completed in 2013-2014. In the first half of 2013, a number of exploration gold targets are being tested along a major east-west structural break located less than 5 kilometres south of the Sunday Lake Deformation Zone that hosts the Detour Lake mine.

The Detour Lake Mine 

The Detour Lake mine is located 185 kilometres northeast from the town of Cochrane, a community of 5,000 residents, and is easily accessible by road via Provincial Highway 652 extension. The deposit is situated in the area of the former Detour Lake mine that was operated by Placer Dome and produced 1.8 million ounces of gold from 1983 to 1999.

 
The Detour Lake mine is designed as a year-round open pit operation with a modern mining camp facility to host its future 500 employees. The mine facilities have been designed to minimize the footprint using state-of-the-art technology to protect the environment and animal species of the area.

Detour Gold reported its first quarter operational update on the Detour Lake mine on April 9, 2013.

2013 First Quarter Highlights

• First production line started on January 12

• First gold pour on February 18

• Second production line started on March 9

• Gold production (poured and plant inventory) for the quarter totaled 16,841 ounces

• Processing rates averaging 36,000 tonnes per operating day at end of March

Ramp-up Update

The Company started its first production line on January 12 and the second production line on March 9. During the quarter, the mill processed a total of 1.02 million tonnes of ore from a combination of stockpiles and run-of-mine. In the last week of March, with both grinding lines in operation, the mill averaged more than 36,000 tonnes per operating day, largely without the use of the secondary crushers. As previously reported, all of the main operating units are fundamentally performing as expected. The valuable start-up experience of the first production line was effectively applied to the second production line and results are steadily improving despite lower than expected overall plant availability. As of May 9, 2013, the ramp-up of the Detour Lake mine is progressing with mill throughput and availability improving from the first quarter. In the first week of May, the processing plant recorded several days at a milling rate of between 40,000 and 50,000 tonnes per operating day.

In the first quarter, the mill facility produced 16,841 ounces of gold in its start-up quarter. As per the mine plan, the average head grade was 0.64 g/t and mill recoveries averaged 80%. Mill recoveries reached 86% in March, which is in line with the model recovery. The gravity circuit is expected to be commissioned in the third quarter coinciding with daily throughput closer to design capacity.

Detour Lake Mine Operation Statistics:

⁽¹⁾ Quarterly period starting on January 12 with first production line and on March 9 with second production line. Availability averaged 70% for both production lines in the last week of March.
⁽²⁾ 7,300 oz poured and 9,541 oz of plant inventory.
 
In the first quarter, 10.43 millon tonnes were mined, of which 8.51 million tonnes were waste (including 4.4 million tonnes of overburden). The run of mine (ROM) ore stockpiles contain over 2.3 million tonnes grading 0.70 g/t. The low-grade stockpile was also increased by 0.62 million tonnes to 1.58 million tonnes grading 0.40 g/t.

The first quarter mining rates in the open pit averaged approximately 123,000 tpd (149,000 tpd in March) of total material moved (overburden, ore, waste and re-handling). Ore mining occurred in narrow, lower grade zones just north of the main Calcite zone where higher localized dilution reduced the average plant feed grade (i.e. mining widths of minimum 15 metres). In April, the ore mining has transitioned into the wider Calcite zone (+80 metres) where higher grade ore is to be mined during the second quarter and where dilution is expected to be reduced.

The reconciliation work indicates that the mining grades correspond well with the reserve block model, validating the value of the grade control methodology (RC drilling) and applicable mining dilution.

The Company has a mining fleet of 20 haul trucks and four shovels available for use, which more than meets the requirements of the 2013 mining operation.

2013 Guidance

The Company remains on target to achieve commercial production in the third quarter of the year. On May 9, 2013, Detour Gold revised its 2013 production outlook to between 260,000 ounces of gold to reflect a slower ramp-up than expected at the Detour Lake mine. Post-commercial production, total cash costs are expected to be between $800/oz and $1,000/oz for 2013.

Updated Mine Production Plan

On September 4, 2012, Detour Gold released the details of the updated Mine Production Plan for the Detour Lake Gold Project. Highlights are as follows:

• Mine plan was based on year-end  2011 open pit reserves of 15.6 million ounces contained gold

• 21.5 years life of mine at mill throughput ranging from 55,000 to 61,000 tpd

• Average annual gold production of approximately 657,000 ounces

  • 2013 gold production estimate of 300,000 - 400,000 ounces

• Average life of mine cash operating costs of $710/oz and total cash costs of $749/oz

  • 2013 total cash costs estimates of between $800/oz and $900/oz (to be reported after commercial production is declared)

• Life of mine sustaining capital of $1.2 billion

  • 2013 sustaining capital of approximately $180 million, mainly for construction of the second cell of the tailings facilities and additional mining fleet costs

  The Company is planning to stockpile material grading between 0.3 to 0.5 g/t Au over the life of mine (approximately 240 Mt averaging 0.39 g/t Au), which could potentially be processed if the Company proceeds with an expansion of the processing plant facilities     Commercial production is expected to be declared on the first day of the calendar month following the mine having operated for a period of 60 consecutive days at an average of 75% or more of the designed production capacity (55,000 tpd x 75% = 41,250 tpd)

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