Detour Gold Corporation
TSX : DGC

Detour Gold Corporation

May 25, 2010 08:00 ET

Detour Gold Receives Positive Feasibility Study for Its Detour Lake Gold Project in Ontario

Mineral Reserves Increased to 11.4 Million Ounces

TORONTO, ONTARIO--(Marketwire - May 25, 2010) - Detour Gold Corporation (TSX:DGC) ("Detour Gold" or the "Company") is pleased to report positive results from the feasibility study for a proposed open pit mine at its 100% owned Detour Lake gold project in northeastern Ontario. The feasibility study was compiled by BBA Inc. ("BBA") with the participation and contribution of prominent industry consultants. All figures are in US dollars except where noted.

Highlights of the Feasibility Study (base case using $850/oz gold)

  • Proven and probable open pit reserves of 11.4 million ounces contained gold with a waste to ore ratio of 3.3:1
  • 16 years life of mine (LOM) at mill throughput ranging from 55,000 to 61,000 tpd
  • Average annual gold production of approximately 649,000 ounces
  • Average LOM cash operating costs of $437/oz
  • First 3 years cash operating costs averaging $386/oz with gold production totalling 1.9 million ounces
  • At $850/oz, pre-tax Net Present Value (NPV) of $1.03 billion at a 5% discount rate generating an Internal Rate of Return (IRR) of 14.4%
  • At current gold price, pre-tax NPV of $3.1 billion at a 5% discount rate generating an IRR of 30.7%
  • Estimated start-up capital costs of $ 992 million
  • Additional opportunities to be realized
  • Global measured and indicated mineral resources of 17.7 million ounces (inclusive of mineral reserves) and 3.4 million ounces in the inferred category

Gerald Panneton, President and CEO of Detour Gold stated: "The completion of the feasibility study in just over three years since the acquisition of the project is a major accomplishment for the Company. With 11.4 million ounces, the Detour Lake deposit is now Canada's largest undeveloped gold reserve and ranks sixth among the top ten largest gold reserves in North America. The positive results confirmed the Detour Lake deposit as a future significant gold producer with an average annual gold production of 649,000 ounces over a mine life of 16 years.

We have been able to reduce the cut-off grade and increase the mill throughput to provide a 32% increase in revenue compared to the pre-feasibility study of September 2009. While we are incurring a 20% increase in capital expenditures over the life of the mine, as a result of the expansion of the mill and tailings facilities, it has enabled us to significantly augment the pre-tax cash flow by 45% to Cdn$2.7 billion from the pre-feasibility study.

Detour Gold is currently working on delivering the other remaining key deliverables to start mine development by the end of 2010, which include receipt of provincial permits and finalizing Aboriginal agreements. The Detour Lake project will make significant impact on the economy of northern Ontario as its largest gold mine. With gold production expected to commence in early 2013, Detour Lake will be among the largest gold operations in North America."

Improvements from Pre-feasibility Study

Additional drilling and trade-off studies undertaken since the pre-feasibility (September 2009) have generated significant improvements in the project economics:

  • Coarser grinding from 70 to 105 microns with relatively no change to gold recovery
  • Mill throughput increase from 45,000 tpd to 55,000-61,000 tpd
  • 30% increase in mineral reserves from 8.8 to 11.4 million ounces
  • Procurement of long lead items has secured delivery times and eliminated potential cost increase

Project Assumptions and Parameters

Assumptions  
Gold price (US$/oz) (1) 850
Foreign exchange rate (Cdn$/US$) 1.10
Fuel price WTI ($/barrel) 80
Income/mining tax rate (%) 25/10
Net Smelter Royalty (%) 2.0
   
Mine Parameters  
Ore milled (Mt) 347.5
Waste mined (Mt) 1,153
Strip ratio (waste:ore) 3.32:1
Average gold grade (g/t) 1.02
Total contained gold (M oz) 11.4
Estimated gold recovery (%) 91.2
Total recovered gold (M oz) 10.4
Mine life (years) 16
Average annual gold production (oz) 649,000
   
Costs  
Pre-production capital ($ M) 992
Sustaining capital and mine closure ($ M) 626
Average operating cash costs ($/oz) 437
Average total cash costs ($/oz) 454
   
Financial Analysis (unleveraged)  
Average annual (pre-tax) cash flow ($ M) 257
NPV 5% discount pre-tax ($ M) 1,026
IRR pre-tax (%) 14.4
IRR after-tax (%) 12.4
Payback period (years) 5.9
 
(1) approximates the 3-year trailing average

Detour Lake Mineral Reserves and Resources

The open pit mineral reserves were estimated within a detailed engineered pit design by using the measured and indicated resources at a cut-off grade of 0.5 g/t. The optimized pit shell was generated using the Lerchs-Grossmann (LG) pit optimizer algorithm using the cost and economic parameters estimated by BBA. In the pit design, inter-ramp pit slopes vary from 49 to 56 degrees depending on rock type and structure orientation. The block model was prepared using the Ordinary Kriging (OK) method and the kriged block grades include an estimated dilution of 13.5%. The estimated proven and probable reserves total 11.4 million ounces, after using a 95% mining recovery rate and an additional mining dilution of 3.8%.

Detour Lake Mineral Reserves at $850/oz (cut-off grade of 0.5 g/t)
       
Reserve Category Tonnes (millions) Grade (g/t Au) Gold Ounces (000's)
Proven 81.5 1.28 3,359
Probable 266.0 0.94 8,030
Total (P&P) 347.5 1.02 11,389
 

The table below summarizes the global mineral resources estimated by OK at various cut-off grades.

Detour Lake Global Mineral Resource Estimate(1)
         
Resource Category Cut-off Grade (g/t) Tonnes (millions) Grade Capped(2) (g/t Au) Gold Ounces (000's)
Measured (M) 0.4 119.8 1.30 5,007
  0.5 108.3 1.39 4,840
  0.6 97.5 1.48 4,650
Indicated (I) 0.4 503.0 0.88 14,286
  0.5 401.8 0.99 12,830
  0.6 323.0 1.10 11,443
Total (M&I) 0.4 622.9 0.96 19,293
  0.5 510.0 1.08 17,670
  0.6 420.5 1.19 16,093
Inferred 0.4 197.0 0.68 4,338
  0.5 133.6 0.80 3,430
  0.6 93.0 0.91 2,716
(1) Mineral reserves are included within the mineral resources reported.
(2) Capping grade estimated by domains and varies from 15 g/t to 50 g/t.

The OK block model used for the global mineral resources was exported to the MineSight pit optimization software to generate an optimum pit shell based on the measured and indicated resources only, using the costs and economic parameters estimated by BBA. The table below shows the in-pit mineral resources at various cut-off grades.

Detour Lake In-pit Mineral Resource Estimate(1)
         
Resource Category Cut-off Grade (g/t) Tonnes (millions) Grade Capped(2) (g/t Au) Gold Ounces (000's)
Measured (M) 0.4 85.7 1.29 3,553
  0.5 77.9 1.37 3,441
  0.6 70.4 1.46 3,309
Indicated (I) 0.4 358.3 0.86 9.862
  0.5 284.2 0.96 8,796
  0.6 226.6 1.07 7,782
Total (M&I) 0.4 444.0 0.94 13,415
  0.5 362.1 1.05 12,237
  0.6 297.0 1.16 11,090
Inferred 0.4 9.7 0.70 218
  0.5 6.3 0.83 169
  0.6 4.5 0.94 138
(1) Mineral reserves are included within the mineral resources reported.
(2) Capping grade estimated by domains and varies from 10 g/t to 50 g/t.

The feasibility study database included drilling data from the pre-Detour Gold programs, and Detour Gold's 2007, 2008, and 2009 drilling campaigns. It includes a total of 880,991 metres of drilling in 5,853 holes, including 334,452 metres from Detour Gold.

The mineral reserves could potentially increase in the future as the Company continues its infill drilling program (on a 40 x 40 metre spacing) to the west of the current open pit boundary. The drilling program for 2010 totals 90,000 metres of drilling, of which nearly 60,000 metres has been completed to date. Results to date from this program (approximately 11,000 metres) indicate the presence of significant gold mineralization to the west of the current open pit.

Mining and Production

The pit design completed by BBA resulted in a mine plan containing 347.5 million tonnes grading 1.02 g/t gold (including low-grade stockpiled ore). Total gold production over a 16 year mine life is estimated to be 10.4 million ounces, averaging 649,000 ounces per year (plus 200,000 ounces of silver). The life of mine waste to ore ratio is estimated at 3.3 to 1.

Summary of the annual mine production plan is outlined below.

Years Ore
Mined
(kt)
Ore
Milled
(kt)
Head
Grade
(g/t)
Production
(oz)
Waste
(kt)
Over
burden
Strip
ratio
PP 4,618   - - 13,587 15,570 6.31
1 17,672 14,018 1.13 467,537 55,399 10,648 3.74
2 30,065 20,096 1.23 729,822 58,865 10,928 2.32
3 30,528 20,293 1.20 716,687 85,783 10,490 3.15
4 20,046 22,336 0.93 608,160 92,579 10,214 5.13
5 20,007 22,336 0.86 564,444 92,201 8,206 5.02
6 20,064 22,336 0.93 606,810 99,772   4.97
7 20,111 22,336 0.96 628,783 94,105   4.68
8 20,094 22,336 0.88 572,703 100,663   5.01
9 20,162 22,336 0.83 539,601 95,152   4.72
10 20,042 22,336 0.86 560,609 83,686   4.18
11 20,116 22,336 0.92 599,328 72,437   3.60
12 20,093 22,336 1.00 656,036 59,626   2.97
13 20,111 22,336 1.06 692,909 34,269   1.70
14 20,065 22,336 1.09 716,006 24,189   1.21
15 20,142 22,336 1.18 771,320 15,359   0.76
16 20,070 21,561 1.28 812,270 8,433   0.42
17 3,456 3,456 1.39 141,696 661   0.19
Total 347,461 347,461 1.02 10,384,721 1,086,766 66,056 3.32
Note: Low-grade ore is stockpiled during PP and in years 1- 3. Starting from year 4, an average of 2.2 Mt will be taken from the low-grade stockpile and be milled.

Conventional open pit mining methods will be used to mine the Detour Lake deposit utilizing a fleet size of up to 36 haul trucks (300 tonne class), 2 electric cable shovels (34 m3), 3 electric-hydraulic shovels (28 m3), 6 drills and various ancillary equipment to support the mining operation. Approximately 28 million tonnes of lower grade ore will be stockpiled during the first three years of operation and be processed throughout the mine life. The open pit design incorporates 10 metre high benches with a 35 metre wide main haul road at a maximum grade of 10%.

Metallurgy, Processing, and Infrastructure

The feasibility study contemplates using a conventional gravity, cyanidation and carbon-in-pulp processing facility initially operating at 55,000 tpd and ramping-up to 61,000 tpd. The assumed availability of the plant is 92% for the first few years and ramping up to 94% in year 4. The grinding circuit consists of two parallel lines, each having one twin pinion semi-autogenous (SAG) mill (36'X20') and one twin pinion ball mill (26'X40.5').These four mills are all equipped with a pair of 7,500 kW variable speed drive motors.

The comminution circuit is designed at 75th percentile ore hardness and is easily expandable. The crushing capacity is now enhanced from the previous design (pre-feasibility study) with inclusion of a larger gyratory crusher (60"X113" HD equipped with 1,000 kW) and the addition of a secondary crushing circuit (2X750 kW crushers). This system allows for a higher throughput of fine feed (75 mm) to the SAG mill, providing efficiency and stability. In addition, this system is complemented with additional crushing capacity in the pebble crushing circuit.

The target grind for years 1 to 3 is set at 95 microns as the tonnage is to be kept at a reduced rate of 55,000 tpd. In year 4, the circuit will be taken to 61,000 tpd by adjusting the grind target to 105 microns and by completing a small expansion of the leach circuit. 

The metallurgy of the Detour Lake deposit is simple as the gold is mainly native and easily liberated allowing excellent recovery and for a relatively coarse grind. The gravity circuit is expected to recover approximately 30% to 40% of the gold. The remaining gold in ore is sent to cyanidation followed by carbon in pulp (CIP) gold recovery. After carbon stripping, the gold will be processed through electro-winning cells prior to gold pour. The overall gold recovery is estimated at 91.2% with silver recovery estimated at 48%.

The cyanide solution is recycled to the head of the circuit to reduce operating cost and environmental impact. The remaining stream is detoxified through an Air/SO2 system before tailings deposition. The Company will initially use the same location for the tailings impoundment facility as the former operation. The design will be expanded to a second and then a third cell downstream containment system with capacity for approximately 350 million tonnes. The surface facilities include a permanent camp, office building, and other supporting infrastructure.

The Company will construct a 230 kV transmission line for the power usage at the mine site using the expansion of the previous 135 km right of way connection to the power grid at Island Falls and widen the existing 45 km transmission line from Island falls to Pinard Transformer Station. The power consumption for the processing plant is estimated at 31 kW h/tonne.

The plant design criteria were developed by BBA from testwork conducted mainly at SGS Lakefield.

Operating Costs

Operating cash costs over the life of the project are projected to average $437/oz (after silver credits). Total operating costs (after royalty and silver credits) are anticipated to average $454/oz.

  $/t milled   $/t mined $/oz  
           
Average mining costs 6.82   1.58 228  
Processing cost 5.21   - 175  
General and administration 1.12   - 37  
Refining charges 0.03     1  
Silver credit (0.13 ) - (4 )
Operating costs (LOM) 13.05   - 437  
           
Royalty (2%) -   - 17  
Total operating costs (LOM) -   - 454  

Capital Costs Estimates

The feasibility study is based on capital pricing as of the first quarter of 2010. The level of accuracy of the capital costs estimates is within ±15% for feasibility studies.

The pre-production capital costs are estimated at $992 million and exclude approximately $83.3 million in 2010 sunk costs that will be funded from existing cash resources. Sustaining capital expenditures over the operation's mine life is estimated at $580 million, of which nearly 65% is in the first four years (mainly for mining fleet and tailings expansion). Provisions for mine closure funding amount to $56 million, of which $10.5 million is included in the pre-production capital.

The current cash position of the Company is approximately Cdn$308 million, which is sufficient to advance the development of the project through mid-2011.

The Company has entered into commitments for a portion of the long-lead items (SAG and ball mills, gyratory crusher, and drive systems) totalling approximately Cdn$75 million. The mining costs estimate for the truck fleet and mobile equipment is based on pricing received from the tendering process during this quarter.

The cost breakdown for pre-production capital expenditures, assuming an owner operator scenario, is shown below.

  Estimate ±15%
($ M)
Description Pre-production Capital Sustaining Capital
Mining 147 274
Process Plant 398 27
Tailings and Water Management 38 270
Infrastructure and Powerline 133 9
Total direct costs 716 580
Other Indirect 141 -
EPCM 55 -
Contingency (10%) 80 -
Total indirect costs 276 -
Total 992 580
Mine Closure 10 46

Financial Analysis

The financial analysis for the Base Case (at a gold price of $850/oz), which evaluates an owner's operation, indicates a pre-tax NPV at a 5% discount rate of $1.03 billion with an IRR of 14.4% (unleveraged) and a payback period of 5.9 years. On an after-tax basis, the NPV at a 5% discount rate is $691 million with an IRR of 12.4%. The project is expected to generate $4.1 billion in pre-tax operating cash flow at $850/oz gold price.

The table below outlines key sensitivities for the pre-tax NPV and IRR of the Detour Lake project.

Discount rate Undiscounted Base Case
5%
10%  
NPV pre-tax($ M) 2,479 1,026 325  
         
Gold price ($/oz) $700 $850 $1,000 $1,150
NPV pre-tax @ 5% ($ M) 111 1,026 1,940 2,855
IRR (%) 6.1 14.4 21.8 28.6
         
Capex change +10% - -10%  
NPV pre-tax @ 5% ($ M) 887 1,026 1,164  
IRR (%) 12.6 14.4 16.6  
         
Operating cost change +10% - -10%  
NPV pre-tax @ 5% ($ M) 746 1,026 1,305  
IRR (%) 12.0 14.4 16.8  

Moving Forward – Additional Opportunities

A successful independent third party review of the feasibility study was completed last month. In addition, the independent engineering review by our bank advisor Barclays Capital is currently underway.

Subject to a production decision, the Company anticipates starting construction of the mine by late 2010, after obtaining provincial permits and completing Impact Benefit Agreements with the Aboriginal communities. The main construction period is estimated at 27 months followed by plant commissioning estimated to commence in the first quarter of 2013.

The Company has recognized additional opportunities to improve the project economics:

  • 90,000 metres of drilling in 2010 immediately west of the open pit could generate an increase in mineral resources/reserves for year-end 2010;
  • Room has been allocated in the infrastructure design to accommodate a third grinding line for potential expansion (i.e. at gold price >$1,000/oz);
  • Projected head grade improvement can be achieved with additional gravity leach tests. An initial leach test on 24 drill core composites representing a block of approximately 700,000 tonnes resulted in a head grade of 1.78 g/t Au compared to the fire assay average of 1.68 g/t Au (uncapped) and 0.78 g/t Au (capped). Three other similar leach tests are currently underway. Subject to positive results in all tests, the capping strategy (currently considered to be conservative) will be reviewed for the year-end estimates.
  • Dilution work to reduce the current one from 17.3% down to approximately 15%
  • Low grade material (0.35-0.5 g/t gold) (equivalent to approximately 1.5 million ounces) could potentially be added to the mineral reserves (i.e. at gold price >$1,000/oz)

Qualified Persons for Feasibility Study

The feasibility study was prepared by leading independent industry consultants, all Qualified Persons (QP) under National Instrument 43-101, with the collaboration of the Detour Gold technical group. The QPs have reviewed and approved the content of this news release. The following consultants participated in the study:

  • BBA Inc., under the direction of André Allaire, Eng., Director Mining and Metals (overall report preparation, mineral processing and infrastructures, capital and operating cost estimates and overall financial analysis) and Patrice Live, Eng., Mining Manager (mineral reserves, open-pit optimization and engineered pit design, mine planning, and mining capital and operating cost estimates)
  • SGS Canada Inc., under the direction of Michel Dagbert, Eng., Senior Geostatistician (mineral resources) and André Laferrière, Senior Geologist, P. Geo. (geology, quality assurance/quality control, and data verification)
  • AMEC Earth & Environmental, a Division of AMEC Americas Limited, under the direction of Sheila Daniel, P.Geo., Head Environmental Management, Associate Geoscientist (environment, permitting, closure plan and costing, and geochemistry); Derek Li, P.Eng., Senior Geotechnical Engineer (tailings, water and other mine wastes management, and associated capital and operating quantity take-off estimates)

A NI 43-101 compliant Technical Report will be filed on the Company's website and on SEDAR within 45 days.

Conference Call

Detour Gold will hold a conference call today at 10:00 AM EST where senior management will discuss the feasibility study and respond to questions from analysts and investors. To join the call:

• In Canada and the United States dial toll free 1-800-769-8320

• International 416-695-6616

• To listen to the audio webcast online, go to: http://www.detourgold.com and click on "Conference Call Audio Webcast May 25, 2010"

The conference call will be recorded and playback of the call will be available after the event by dialing toll free in Canada and the United States 1-800-408-3053, or internationally 416-695-5800, pass code 3772571 (available up to June 30, 2010).

Forward-Looking Information

This press release contains certain forward-looking information as defined in applicable securities laws (referred to herein as "forward-looking statements"). Specifically, this press release contains forward-looking statements regarding the results and projections contained in the feasibility study of the Detour Lake gold project, including the reserve and resource estimates, ore grade, the expected mine life, anticipated gold production, gold recovery, the commencement of construction, cash operating costs and other costs, the projected internal rate of return, capital costs, sensitivity to metal prices and other sensitivities, the projected payback period, the availability of capital for development, the financial analysis and expected drilling activities. Forward-looking statements involve known and unknown risks, uncertainties and other factors which are beyond Detour Gold's ability to predict or control and may cause Detour Gold's actual results, performance or achievements to be materially different from any of its future results, performance or achievements expressed or implied by forward-looking statements. These risks, uncertainties and other factors include, but are not limited to, gold price volatility, changes in debt and equity markets, the uncertainties involved in interpreting geological data, increases in costs, environmental compliance and changes in environmental legislation and regulation, interest rate and exchange rate fluctuations, general economic conditions and other risks involved in the gold exploration and development industry, as well as those risk factors discussed in the section entitled "Description of Business - Risk Factors" in Detour Gold's 2009 annual information form.
Such forward-looking statements are also based on a number of assumptions which may prove to be incorrect, including, but not limited to, assumptions about the following: the availability of financing for exploration and development activities; the estimated timeline for the development of the Detour Lake gold project; the supply and demand for, and the level and volatility of the price of, gold; the accuracy of reserve and resource estimates and the assumptions on which the reserve and resource estimates are based; the receipt of necessary permits; market competition; ongoing relations with employees and impacted communities; and general business and economic conditions. In addition, the feasibility study uses an estimate of gold price based on an approximate three-year average. The operating and capital costs in the feasibility study were developed to be reasonable estimates within industry benchmarks. There is no certainty that the results of the feasibility study will ever be realized. Should one or more of the risks or uncertainties involved in forward-looking statements relating to the feasibility study materialize, or should the assumptions underlying the feasibility study prove incorrect, actual results of the feasibility study may vary materially from those anticipated, believed, estimated or expected. Accordingly, readers should not place undue reliance on forward-looking statements. Detour Gold undertakes no obligation to update publicly or otherwise revise any forward-looking statements contained herein whether as a result of new information or future events or otherwise, except as may be required by law.

Information Concerning Estimates of Mineral Reserves and Resources

The mineral reserve and resource estimates reported in this press release were prepared in accordance with Canadian National Instrument 43-101Standards of Disclosure for Mineral Projects ("NI 43-101"), as required by Canadian securities regulatory authorities. For United States reporting purposes, the United States Securities and Exchange Commission ("SEC") applies different standards in order to classify mineralization as a reserve. In particular, while the terms "measured," "indicated" and "inferred" mineral resources are required pursuant to NI 43-101, the SEC does not recognize such terms. Canadian standards differ significantly from the requirements of the SEC. Investors are cautioned not to assume that any part or all of the mineral deposits in these categories constitute or will ever be converted into reserves. In addition, "inferred" mineral resources have a great amount of uncertainty as to their existence and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of an inferred mineral resource will ever be upgraded to a higher category. Under Canadian securities laws, issuers must not make any disclosure of results of an economic analysis that includes inferred mineral resources, except in rare cases.

Contact Information

  • Detour Gold Corporation
    Gerald Panneton
    President and CEO
    (416) 304.0800
    or
    Detour Gold Corporation
    Laurie Gaborit
    Director Investor Relations
    (416) 304.0581
    or
    Detour Gold Corporation
    Royal Bank Plaza, North Tower
    200 Bay Street, Suite 2040
    Toronto, Ontario M5J 2J1
    www.detourgold.com