TORONTO Jul 31, 2015 (Thomson StreetEvents) -- Edited Transcript of Detour Gold Corp earnings conference call or presentation Thursday, July 30, 2015 at 2:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Laurie Gaborit Detour Gold Corporation - Director of IR * Paul Martin Detour Gold Corporation - President, CEO & Director * Pierre Beaudoin Detour Gold Corporation - COO * James Mavor Detour Gold Corporation - CFO ================================================================================ Conference Call Participants ================================================================================ * Rahul Paul Canaccord Genuity - Analyst * Cosmos Chiu CIBC World Markets, Inc. - Analyst * Kerry Smith Haywood Securities - Analyst * Anita Soni Credit Suisse - Analyst * Mike Parkin Desjardins Securities - Analyst * Steve Parsons National Bank Financial - Analyst * Killian Charles Laurentian Bank Securities - Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Thank you for standing by. Welcome to the Detour Gold second quarter 2015 results conference call and webcast. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. (Operator Instructions). At this time, I would like to turn the conference over to Laurie Gaborit, Director of Investor Relations of Detour Gold. Please go ahead. -------------------------------------------------------------------------------- Laurie Gaborit, Detour Gold Corporation - Director of IR [2] -------------------------------------------------------------------------------- Thank you, operator, and good morning, everyone. I'm pleased to welcome you today to Detour Gold's 2015 second quarter results conference call and webcast. Paul Martin, President and CEO, will review our Q2 results and, following this, and Pierre Beaudoin, our Chief Operating Officer and James Mavor, our Chief Financial Officer, would also be available to answer questions at the end of the call. Today's presentation is available for download both on this webcast and on the Company's website on the homepage. Yesterday's related press release is also posted on the Company's website. Please note that certain statements to be made today by the management team may contain forward-looking information. Forward-looking statements are subject to known and unknown risks, uncertainties, and other factors that may cause the actual results to be materially different from those expressed or implied by such forward-looking statements. For more information we refer you to our detailed cautionary note in yesterday's press release. Please note that all dollar amounts mentioned on this call are in US dollars unless otherwise noted. Now, to second quarter results, I will turn the call over to Paul. -------------------------------------------------------------------------------- Paul Martin, Detour Gold Corporation - President, CEO & Director [3] -------------------------------------------------------------------------------- Good morning, everyone. We're pleased today to report on our strongest performance to date at the Detour Lake operation. It's truly impressive what our team has achieved over a short period of time. At the same time, this merely a glimpse into what is yet to come as our grade profile begins to improve. We're going to make this call shorter than usual as we had released an operational update for our June 4th mine tour. I'll focus on some of the key achievements and how we see the second half of the year unfolding and then we'll turn it over quickly for questions. I'd like to start with our safety performance. Without a good safety record, the operation is not sustainable. At Detour Gold, our ultimate objective is to operate our business with zero injuries. We view this as a journey and one which will require everyone's focus and determination. Our safety performance measured on total recordable injury frequency is at 2.8 for the first half of the year, with the second quarter being higher than the first quarter. Our 2015 initiatives have shown promise, as we had no reportable incidents in April. Our goal is make April the norm rather than the anomaly. This is a record quarter on nearly all fronts. Our efforts to stabilize the mill and mine have paid off, resulting in a strong second quarter. This was our first quarter exceeding plan for both the mining and milling rates; our first quarter with gold production exceeding 120,000 ounces, 125,348 ounces to be exact; our first quarter with first total cash costs below $750 per ounce sold and with all-in sustaining costs of $1,030 per ounce sold and a significant decline from Q1. For the first half of 2015 we stand at 230,920 ounces of gold produced at a total cash cost of $828 per ounce sold and all-in sustaining costs of $1,163 per ounce sold. We are now in a breakeven cash flow position and, with expected stronger operational performance for the second half of the year, we should start generating free cash flow as we further benefit from the weakness in the Canadian dollar despite the recent gold price decline. Our goal for the second quarter was to process, for the first time, 5 million tonnes of ore, the design rate. We exceeded our target and processed 5.2 million tonnes equivalent to a throughput rate of 57,015 tonnes per day. This was accomplished with record milling rates at 2,712 tonnes per operating hour, versus a design rate of 2,500 tonnes and during a period that included our largest planned shutdown to date. For the second half of 2015, our focus at the processing plant will continue towards further optimization. This includes continuing the work to strengthen the 410 conveyer and bringing the plant's operating time to greater than 90%. During the third quarter, we will be testing milling rates of up to 2,800 tonnes per operating hour with the addition of the fines, or the enriched portion of the mineralized waste stockpile, at a rate of up to 4,000 tonnes per day. This test sample should continue throughout the third quarter and may extend into the fourth. Success here could lead to the inclusion of fine in the life-of-mine update. We are still targeting an average throughput rate of 55,000 tonnes per day for the second half of the year, but this is exclusive of the fines processing. At the mine operations, we recorded our best mining rates to date; 280,000 tonnes per day average for the quarter and exceeding budget by 18%. Going forward, we need to keep our focus on accelerating the east end of the pit to allow access to higher-grade ore, and this goes at a slower rate due to stacked and smaller benches in the area of the former Campbell pit, and speeding up waste rock delivery with the 795 haulage trucks to the TMA in the fourth quarter. These are some of the reasons why we are not projecting mining rates to go up higher in the second half and have provided a range of 250,000 tonnes to 290,000 tonnes per day with the third quarter lower than the fourth quarter. In fact, the third quarter mining rate is expected to be at the lower end of this range. The strong mining performance has provided the opportunity to rebuild our run-of-mine stockpiles to 1.7 million tonnes at 0.71 grams per tonne for approximately 39,000 ounces at the end of June. This safety net now provides us with the operational flexibility that had been lost in the first quarter as a result of depleting these stockpiles. Our plan has shifted to focus on controlling dilution even more and deliver higher grades to the mill; in other words, trading off tonnes for grade as we have now significantly reduced the pressure on the mining rates for 2015. We also plan to accelerate pre-stripping in Phase 2 by moving a 6060 shovel and operate with four shovels for Phase 1 when this does not impact our gold production targets. We have also said, with economies of scale our costs would come down. Well, I'm extremely proud of our team's achievements this quarter, which have resulted in our lowest cost to date on a per-ounce and a per-tonne basis. Our per-tonne unit costs for the second quarter are all under budget for the first time and this has been achieved without the benefit of the currency as we report these in Canadian dollars. Going forward, we expect further cost reductions with a key focus on controlling our absolute costs. Adding improved fee grade to this combination should lead to another step-change downward to our total cash costs and all-in sustaining costs by year end. At this time, our 2015 guidance remains unchanged at 475,000 ounces to 525,000 ounces of gold produced and all-in sustaining costs of $1,050 to $1,150 per ounce sold. What I will add is, with the improved operational performance seen over the last five months, we are striving to be above the midpoint of the guidance and achieving the midpoint implies 270,000 ounces of production in the second half of the year. Also, let's see the benefits of processing fines during the third quarter, which was not included in our yearly guidance. With the second half of the year shaping up well from an operational perspective and grades expected to improve, we look forward to a run of generating free cash flow for the first time in the Company's history. As we have previously communicated, we continue to progress on the life-of-mine update. As you know, this is not a simple refresh, as we are evaluating a number of additional aspects that were not available to us in the prior study and these include, amongst others, the inclusion of Block A as second feed source, a tonnage rationalization study to determine the appropriate mining rate for both deposits, and the possible inclusion of processing of fines. And we must be adaptable to the gold price environment we are facing. We don't want to simply chase tonnes and ounces, as this can be capital-intensive and is higher-risk from an execution standpoint. With over two years behind us, we certainly understand our capabilities and the mine operational capacities much better now and can make a much more informed decision. We are focusing on an annual maximum mining rate of 110 million tonnes to 140 million tonnes with the upper end being the max in the prior study. And, for perspective, our Q2 mining rate annualized equates to approximately 100 million tonnes. Our current focus is to finalize the mine plan details to allow us to complete our 2016 budget and, as such, we remain committed to a December or, at latest, a January release of the updated life-of-mine plan along with our annual guidance for 2016. While we can't say much more at this time, we are confident in providing an update that generates solid economics with a lower-risk profile. And on the exploration front, our second phase drilling program of 30,000 meters at Lower Detour started at the end of June. The program is expected to take approximately four months. To date, we've completed approximately 24% of the holes with visible gold noted in the majority more than justifying the continuance of the program. Assay results are just starting to come in. However, at this time, we expect to release the entire program together later this year. I'll spend just a few minutes reviewing the key financial highlights of the quarter. The Company generated an operating profit of $7.5 million in the second quarter and an adjusted net earnings of $0.5 million. The quarter benefitted from higher gold production and a favorable exchange rate of 1.23. The Company's gold, foreign exchange, and diesel hedging programs continue to be effective. At the end of June, the mark-to-market on the combined positions was a positive $3 million. You will also have seen in the release that were notified by the IESO that they have re-reviewed and amended their formula for the power rebate due to an error, which has impacted all participants under the Stream 2 program. This has resulted in a requirement to return $12.5 million of the previous rebates or approximately 24%. The return of these funds is interest-free and required over a 20-month period. While this is unfortunate, the benefits of the program remain significant and currently extend to the end 2019 with an anticipated extension pending to the end 2024. During the quarter, Jim was successful in his discussions to amend our credit facility to allocate $5 million from the borrowing facility to the letter of credit facility to increase the capacity as we were using the LC facility and not the borrowing one, to remove the completion test, and to relax the net debt to EBITDA covenant test during the remainder of 2015 by increasing it to 4.5 to 1 and having it scale back down to 3.5 to 1 by September 2016. And, although we removed the completion test, we are pleased to report that our second quarter operating and financial performance passed the test thresholds. And we closed the quarter with a strong cash position of $133 million. We can now look forward to our cash balances increasing throughout the second half of this year. Of course, the gold price and exchange rate will determine the extent to which we can do this. We are well-positioned to benefit from the further decline of the Canadian dollar against the U.S. dollar, which, at current levels, is still near multi-year highs. And, as you can see from the slide, although it's one day out of date now, the CAD-equivalent gold price has been trending well above what is was at the beginning of the year. With expectations for stronger operational performance in the second half and continued benefit of the foreign exchange tailwinds against our 80% exposure to the CAD dollar, the Company can not only weather this relatively weak gold price environment, but increase our cash resources. And with that, operator, I'll now turn the call over to you to open up the line for questions. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Thank you. We will now begin the question and answer session. (Operator Instructions). Rahul Paul, Canaccord Genuity. -------------------------------------------------------------------------------- Rahul Paul, Canaccord Genuity - Analyst [2] -------------------------------------------------------------------------------- Hi, everyone. Congratulations on a great quarter. On the processing of fines, I'm just wondering if you can talk a little more about the testing. You indicated that you're running the material through at 4,000 tonnes a day. Would you run that much through for several days at a stretch or every other day or I mean how would you do it? And also, how many tonnes of the stockpile would you need to get 4,000 tonnes? -------------------------------------------------------------------------------- Pierre Beaudoin, Detour Gold Corporation - COO [3] -------------------------------------------------------------------------------- It's Pierre speaking. -------------------------------------------------------------------------------- Rahul Paul, Canaccord Genuity - Analyst [4] -------------------------------------------------------------------------------- Hi, Pierre. -------------------------------------------------------------------------------- Pierre Beaudoin, Detour Gold Corporation - COO [5] -------------------------------------------------------------------------------- So, what we've done so far, and I cannot say we've done that every day, but we've done between 25 to 4,000 tonnes a day. At this point, the modeling suggests that each tonne of fines is displacing roughly 25% of this amount. So, if we can process 4,000 tonnes in a day, it appears that the model is suggesting that 3,000 tonnes of these 4,000 tonnes are new feed, are fee. And so, the goal of this step is really to validate that. And, certainly, the early indication is that it works, but we want to move to an on-off base during the quarter to test it in a period of probably something like four or five days with it and four or five days without it and make sure that the increase in throughputs that we are monitoring can be confirmed and validated to be because of the processing of fines. So, I think this answered your first question. As for the second question, typically what we try to do is we get this tonnage, whatever the tonnage is, on roughly 25% of the height of the stockpile. So, if we have a height of, let's say, 16 meters, that would be, essentially, 4 meters that is being taken off. So, to produce 4,000 tonnes of fines we would essentially need 16,000 tonnes of low-grade material. And I'll just repeat that this material is not in the reserve. So, every time we produce these fines we're kind of creating medium-grade ore. -------------------------------------------------------------------------------- Rahul Paul, Canaccord Genuity - Analyst [6] -------------------------------------------------------------------------------- Okay, thanks. Thanks, Pierre. That's really helpful. And I mean is it too early to talk about what you've seen in the month of July? -------------------------------------------------------------------------------- Pierre Beaudoin, Detour Gold Corporation - COO [7] -------------------------------------------------------------------------------- Yes, it is. I already gave you a hint as what we have there. But, I think it's too early to reach the final conclusion of this. It's promising, but we need to make sure that the impact and the effect we're seeing is indeed coming from the fines and not from -- it could be other things, right? It could be the overall ore hardness is going down. It could be a better performance of our operating team. It could be a number of factors. So, our challenge now is to try to isolate the benefit that we're currently seeing. -------------------------------------------------------------------------------- Rahul Paul, Canaccord Genuity - Analyst [8] -------------------------------------------------------------------------------- Okay, thanks. Thanks for that. And then a question for Paul or Jim. On the Canadian dollar, I mean it seems to be, at least this cycle, it seems to be a natural hedge against the gold price declining for you guys. I mean I know that you do have sort of an active currency hedging strategy. So, has that changed in any way or would you still consider hedging the Canadian dollar at these levels? -------------------------------------------------------------------------------- James Mavor, Detour Gold Corporation - CFO [9] -------------------------------------------------------------------------------- Rahul, it's Jim here. Yes, we would. We've had this program in place for the last year-and-a-half and it really just gives us either floor protection through a range collar or just absolute through these forwards. But, our current hedge coverage is probably 25% to 30% and, given that the Canadian dollar has fallen by $0.15 in the last six months, when we go forward with it we'd be inclined to use these collars just to give us a little more participation if it continues to depreciate. -------------------------------------------------------------------------------- Rahul Paul, Canaccord Genuity - Analyst [10] -------------------------------------------------------------------------------- By the collars you would get the benefit of the currency weakening a little bit more. Is that right? -------------------------------------------------------------------------------- James Mavor, Detour Gold Corporation - CFO [11] -------------------------------------------------------------------------------- So, simplistically, the Canadian dollar is at $1.30 today. We'd be able to protect a $1.25. That will be our worst case. And then we'd have participation up to, say, just north of the $1.35. -------------------------------------------------------------------------------- Rahul Paul, Canaccord Genuity - Analyst [12] -------------------------------------------------------------------------------- Okay. So you would still have -- you'd still have some exposure. -------------------------------------------------------------------------------- James Mavor, Detour Gold Corporation - CFO [13] -------------------------------------------------------------------------------- Yes. -------------------------------------------------------------------------------- Rahul Paul, Canaccord Genuity - Analyst [14] -------------------------------------------------------------------------------- Okay, thanks. That's all that I had. Congratulations, again. -------------------------------------------------------------------------------- Operator [15] -------------------------------------------------------------------------------- Cosmos Chiu, CIBC. -------------------------------------------------------------------------------- Cosmos Chiu, CIBC World Markets, Inc. - Analyst [16] -------------------------------------------------------------------------------- Hi, Paul, Pierre, Jim, and Laurie. Thanks for hosting the call. I have a few questions here. Maybe, first off, on the grade in Q2. Certainly 0.82 gram per tonne was better than expected. I think you had been guiding to closer 0.75 gram to 0.8 gram per tonne. Maybe if you can talk a little bit about that and then, in terms of any potential impact for future quarters. Hopefully this isn't a higher grade that was supposed to come in Q3 moved into Q2. I just want to make sure there was no impact, as well, the second half of 2015. -------------------------------------------------------------------------------- Pierre Beaudoin, Detour Gold Corporation - COO [17] -------------------------------------------------------------------------------- Okay. Could you repeat the second part of your question? -------------------------------------------------------------------------------- Cosmos Chiu, CIBC World Markets, Inc. - Analyst [18] -------------------------------------------------------------------------------- I'm just wondering if it's going to impact -- if it has any impact for the rest of 2015. -------------------------------------------------------------------------------- Pierre Beaudoin, Detour Gold Corporation - COO [19] -------------------------------------------------------------------------------- Okay, yes -- -------------------------------------------------------------------------------- Cosmos Chiu, CIBC World Markets, Inc. - Analyst [20] -------------------------------------------------------------------------------- That you're not taking higher grade from like Q3 and moving into Q2 and whatnot so that what you had expected in Q3 and Q4 still stands. -------------------------------------------------------------------------------- Pierre Beaudoin, Detour Gold Corporation - COO [21] -------------------------------------------------------------------------------- Okay the answer to question number two is, yes, we are taking grade from Q3 into Q2, but the second part of that question is, no, it's not going to impact Q3. Okay? In fact, what we've been saying all along is that, in our what we refer to on our hockey-stick production, our goal is to try to bring the production from Q4 into Q3 and if we could take the production from Q3 into Q2 and to de-risk the overall year. And, so far, this is exactly what we've been able to do. But, essentially, Q3 and Q4 remain unchanged as per our guidance. So, we're comfortable with what is coming in Q3 and Q4. And, actually, if you go on this presentation, you're going to see that we're forecasting, now, Q3 to be a little higher than what we first expected. As for the grade in Q2, we were calling between 0.75 grams and 0.8 grams and even on June 4, when we had the visit, we were still talking about these numbers. The reason why the grade was a little higher than expected is mainly coming from the last month. It's mainly coming from June, which brought the average for the quarter a little higher than the higher end of what we were expecting. And that's essentially it. The model is continuing to behave very well. And, as we pointed out, we've been able to rebuild the stockpile. This was a milestone that we really wanted to achieve. Actually, we wanted to achieve that in Q3 or Q4, but we've been able to do it in Q2 so we're very happy with that. So, overall, I think if there's something to be learned from that is we're still very happy with the performance of the Block model. -------------------------------------------------------------------------------- Cosmos Chiu, CIBC World Markets, Inc. - Analyst [22] -------------------------------------------------------------------------------- Sure. That's great. Certainly a very good quarter. In terms of costs, Pierre, we've seen the costs at the lowest level that they've ever been in Q2. Was that a function of the higher tonnage? And, if that's the case -- as Paul talked about mining rates being a bit lower and it certainly sounds like milling rates could be a bit lower as well. Is that going to impact these per-tonne unit costs? And how should we look at it? -------------------------------------------------------------------------------- Pierre Beaudoin, Detour Gold Corporation - COO [23] -------------------------------------------------------------------------------- I think Paul already talked to this for the second half, but let me reiterate just what he said. A large part of this is coming from the economy of scale and we've always said that the improvements in cost are going to be associated with our ability to take advantage of the economy of scale. And we really see that we can repeat these lower costs in the future if we can manage to repeat this economy of scale. But that's only one part of the equation, quite honestly, because even within this we still think that our operation team needs to continue to work on the use of contractor is our number-one issue still. And, also, in the consumables we believe we can do a little better. They've done amazing progress there, but there is still some that can be done there. And you should not understand that -- you should not hear me saying in these comments that necessarily these costs are going to keep going down quarter from quarter. What I'm saying is, in the long term, we see that our costs are going to come down. But, obviously, we've suggested here that next quarter is more likely to be around 250,000 tonnes per day from the mine. So, obviously, the economy of scale is going to taking a bit of a beating here and so will be a part of operating costs. -------------------------------------------------------------------------------- Cosmos Chiu, CIBC World Markets, Inc. - Analyst [24] -------------------------------------------------------------------------------- Of course. Maybe a question for Paul. Paul, you mentioned that -- I don't know if you're being overly conservative, but you were mentioning that you're free cash flow neutral in the quarter. To me, looking at your financial statements, to me, by definition, it looks like you're free cash flow positive. Maybe you can enlighten me in terms of your definition and what we should be looking at for the future quarters. -------------------------------------------------------------------------------- Paul Martin, Detour Gold Corporation - President, CEO & Director [25] -------------------------------------------------------------------------------- Yes. So, Cosmos, the point of when I say we're cash flow neutral, we had talked about a $12 million CAT lease, a GST refund, an HST refund sort of spanning over the quarters. So that, adjusted for Q1, we were at $130 million and we're at $133 million now. So, for me, that's saying we're at the breakeven point. But, now, with, as you can see for the guidance going forward, that's 230,000 ounces in the first half of the year and midpoint is 270,000 ounces in the second half of the year. Not to mention, a much weaker dollar at the moment. And if that continues, that's going to help us as well. So, I'm not going to get into numbers because the gold price right now is very tough to peg, but definitely, certainly in my opinion, we will be making cash in the second half. -------------------------------------------------------------------------------- Cosmos Chiu, CIBC World Markets, Inc. - Analyst [26] -------------------------------------------------------------------------------- Great. And maybe one last question, then, this one for Jim. Congrats, first of all, on renegotiating the covenants on the lines of credit. Certainly, you've given yourself a bit more flexibility in terms of the covenants. Based on my calculation at spot prices, the covenants look okay. But, as Paul said, as we see, as well, there's a lot of volatility in the gold price. Jim, have you done any kind of sensitivity on your covenants to kind of see at what gold price it could get a bit stressed per se? -------------------------------------------------------------------------------- James Mavor, Detour Gold Corporation - CFO [27] -------------------------------------------------------------------------------- So, Cosmos, you're right. Based on the Q2's actual, we're comfortably passing the new covenants and we would pass the old ones, too. But, since we took the opportunity to amend the credit facility and extend it by an extra 15 months or so and a few other tweaks to the facility, we also felt it was appropriate, given the volatility that we've seen in the gold price, to give us a little more flexibility. We're obviously not predicting the gold price to go much lower, but if it does it just allows us to go forward and run the business as we should and not have to go to the bank group for a waiver if we get too close. -------------------------------------------------------------------------------- Cosmos Chiu, CIBC World Markets, Inc. - Analyst [28] -------------------------------------------------------------------------------- And does it matter anyways? Because I know certainly on the letter of credit you have drawn money out for the letter of credit, but nothing's drawn out yet on the revolving line of credit. So, how does that -- hypothetically speaking if you do go offside on these covenants, what's the impact? -------------------------------------------------------------------------------- James Mavor, Detour Gold Corporation - CFO [29] -------------------------------------------------------------------------------- So, most credit facilities would have a revolver component and a letter of credit component, but it's one facility. So, no matter if you've got everything drawn, or partially drawn in our case, you have to pass the financial covenants. And, if you don't, then you have to get a pass or a waiver from the bank group and, if you don't, then you have to repay them. So, we're in good shape and we wanted to build in some extra flexibility. -------------------------------------------------------------------------------- Cosmos Chiu, CIBC World Markets, Inc. - Analyst [30] -------------------------------------------------------------------------------- And one last thing about the covenants. In terms of the mechanics behind the covenants, Jim, how should I calculate in terms of leverage ratio? The net debt, is that only the convert? If it's only convert, is it the $500 million or is it $423 million debts for accounting purposes? -------------------------------------------------------------------------------- James Mavor, Detour Gold Corporation - CFO [31] -------------------------------------------------------------------------------- So, the total debt is the convertible notes plus any amounts drawn under our credit facility and our surety bonds outstanding. So, off the top of my head, I'd it's about $540 million and you deduct the cash to get your net debt and then you take that and you divide it by our quarterly EBITDA. And so, when you do that calculation, you probably get a number under 3.0 for the second quarter. -------------------------------------------------------------------------------- Cosmos Chiu, CIBC World Markets, Inc. - Analyst [32] -------------------------------------------------------------------------------- And for the converts, are you using the face value of the converts? Are you using the amortized number? -------------------------------------------------------------------------------- James Mavor, Detour Gold Corporation - CFO [33] -------------------------------------------------------------------------------- The face value of $500 million. -------------------------------------------------------------------------------- Cosmos Chiu, CIBC World Markets, Inc. - Analyst [34] -------------------------------------------------------------------------------- Got it. Okay. That's all I have. Congrats, again, on the very strong quarter. -------------------------------------------------------------------------------- Paul Martin, Detour Gold Corporation - President, CEO & Director [35] -------------------------------------------------------------------------------- Thank you. -------------------------------------------------------------------------------- Operator [36] -------------------------------------------------------------------------------- Kerry Smith, Haywood Securities. -------------------------------------------------------------------------------- Kerry Smith, Haywood Securities - Analyst [37] -------------------------------------------------------------------------------- Thank you. Pierre, is there any big mill shutdowns planned in the second half. I guess there probably would be one Q4, wouldn't there? I'm just curious how long that might be. -------------------------------------------------------------------------------- Pierre Beaudoin, Detour Gold Corporation - COO [38] -------------------------------------------------------------------------------- There is a shutdown planned for Q4. It's already planned in our forecast. It should be a shutdown a little smaller than what we did in Q2. We're contemplating doing an even smaller one in Q3, but this, again, is included in our forecast. -------------------------------------------------------------------------------- Kerry Smith, Haywood Securities - Analyst [39] -------------------------------------------------------------------------------- Okay. And so, you're budgeting four days, then, for the Q4 one? -------------------------------------------------------------------------------- Pierre Beaudoin, Detour Gold Corporation - COO [40] -------------------------------------------------------------------------------- Typically, these shutdowns go for six days on one line. So, it's three days equivalent. You should assume three days down. -------------------------------------------------------------------------------- Kerry Smith, Haywood Securities - Analyst [41] -------------------------------------------------------------------------------- Okay, for the lines. Okay. Okay. And then what else are you thinking of doing with the 410 conveyer now? It sounds like you have made some modifications, but you referred to possibly some more things that you could do. What else are you planning? -------------------------------------------------------------------------------- Pierre Beaudoin, Detour Gold Corporation - COO [42] -------------------------------------------------------------------------------- Well, we have a number of things that we are doing. It's a bit difficult to explain on this call. There's six or seven elements that we're working on, on this conveyer, to improve the robustness. And we're looking even into next year to -- we're contemplating a number of things for next year, as well. We still see -- even though the conveyer has been operating fine now for the better part of -- the last serious issue we had was in January so it's been operating fine for the last six months, but it requires a lot of tender loving care. And we believe that this is still our main bottleneck to be able to develop the operation to its ultimate capacity. So, for the moment, what we're focusing on is really to try to increase the robustness, reduce the risk associated in the short term. And, in parallel with this, Chuck and his team are looking to find a permanent solution and possibly implement that permanent solution in 2016. -------------------------------------------------------------------------------- Kerry Smith, Haywood Securities - Analyst [43] -------------------------------------------------------------------------------- Okay. And when do you think you'd be in a position to decide if you would be putting in a permanent solution in 2016? And if you did it -- -------------------------------------------------------------------------------- Pierre Beaudoin, Detour Gold Corporation - COO [44] -------------------------------------------------------------------------------- We're going to do that in the budget process, Kerry. -------------------------------------------------------------------------------- Kerry Smith, Haywood Securities - Analyst [45] -------------------------------------------------------------------------------- In the budget, okay. And if you had to do a permanent solution, could it be something that could be incorporated into a regular mill shutdown or would it be longer than that? -------------------------------------------------------------------------------- Pierre Beaudoin, Detour Gold Corporation - COO [46] -------------------------------------------------------------------------------- Probably the best way to do that would probably -- I'm speculating a bit because we're not finished on this one so take this into consideration here in my answer. But, typically, with something like that you'd like to do it during a regular shutdown. But, because this is typically longer than a regular shutdown what we'd probably need to do is find a way to keep feeding the plant with an alternate source than the gyro for that period of time; a bit like we normally do when we have an extended shutdown. What we do is we crush material on the site of the stockpile and we reintegrate that throughput, bypassing the 410 conveyer. So, it's not as an effective operation, but it allows us to operate at, say, 2,000 tonnes an hour as opposed to 2,800 tonnes or 2,700 tonnes. -------------------------------------------------------------------------------- Kerry Smith, Haywood Securities - Analyst [47] -------------------------------------------------------------------------------- Okay. That's good. That's helpful. Great. Thanks very much. -------------------------------------------------------------------------------- Operator [48] -------------------------------------------------------------------------------- Anita Soni, Credit Suisse. -------------------------------------------------------------------------------- Anita Soni, Credit Suisse - Analyst [49] -------------------------------------------------------------------------------- Hi. Good morning, Paul, Pierre, Jim, and Laurie. My question is with regards to the dilution rates. Could you just comment on that? -------------------------------------------------------------------------------- Pierre Beaudoin, Detour Gold Corporation - COO [50] -------------------------------------------------------------------------------- Yes. Actually, our dilution in the second quarter was actually a little higher than we would have hoped for. But, we're not overly surprised with that because we focused our energy to increase our stockpile and, when we do that, we usually take a little more dilution. Now, going forward, what we're trying to do in Q3 and Q4, since we've rebuilt our stockpile, is to be a little more aggressive with our mining shape and to focus our energy to reduce the dilution back to the kind of level that we want to see, around 3% or 4%. -------------------------------------------------------------------------------- Anita Soni, Credit Suisse - Analyst [51] -------------------------------------------------------------------------------- And how much direct ore feed do you think -- I mean I think we had a discussion previously about the economies of scale that you were seeing in terms of direct feed versus stockpiling some of that lower-grade material that you're now using as fines. What kind of impact do you think you'll see during the fourth quarter by going a little less direct feed and a little bit more stockpiling? -------------------------------------------------------------------------------- Pierre Beaudoin, Detour Gold Corporation - COO [52] -------------------------------------------------------------------------------- I don't know that -- I didn't say, Anita, that we would go more with stockpile feed. I didn't say that. And, in fact, I'd say that it's quite the opposite. -------------------------------------------------------------------------------- Anita Soni, Credit Suisse - Analyst [53] -------------------------------------------------------------------------------- Okay. -------------------------------------------------------------------------------- Pierre Beaudoin, Detour Gold Corporation - COO [54] -------------------------------------------------------------------------------- Okay? -------------------------------------------------------------------------------- Anita Soni, Credit Suisse - Analyst [55] -------------------------------------------------------------------------------- Yes. Alright, then. And in -- -------------------------------------------------------------------------------- Pierre Beaudoin, Detour Gold Corporation - COO [56] -------------------------------------------------------------------------------- So that we're clear for the other people on the call, we have 1.7 million tonnes of stockpile and in Q3 we see this number going up not down. Okay? -------------------------------------------------------------------------------- Anita Soni, Credit Suisse - Analyst [57] -------------------------------------------------------------------------------- Alright. Okay. -------------------------------------------------------------------------------- Pierre Beaudoin, Detour Gold Corporation - COO [58] -------------------------------------------------------------------------------- Sorry, Anita. You were going to ask. -------------------------------------------------------------------------------- Anita Soni, Credit Suisse - Analyst [59] -------------------------------------------------------------------------------- Yes. And then, just in terms of the fines, could you just reiterate what grade that you're -- the processing the 4,000 tonne per day, what grade that's, I guess, concentrating to? -------------------------------------------------------------------------------- Pierre Beaudoin, Detour Gold Corporation - COO [60] -------------------------------------------------------------------------------- Okay. The first test we did, and that's the only data point that we have, but it was a fairly solid test we did. The grade went from 0.45, which was considered mineral-wise waste to 0.62 during that test. So, going forward, our geology team is considering the fines at 0.62 grams per tonne. -------------------------------------------------------------------------------- Anita Soni, Credit Suisse - Analyst [61] -------------------------------------------------------------------------------- Alright, thank you very much. Congratulations on a good quarter. -------------------------------------------------------------------------------- Operator [62] -------------------------------------------------------------------------------- Mike Parkin, Desjardins. -------------------------------------------------------------------------------- Mike Parkin, Desjardins Securities - Analyst [63] -------------------------------------------------------------------------------- Hi, guys. Just a follow-up question on these fines. Can you just -- I just wanted to make sure I got this right. What's the ratio that you can generate out of the stockpile in terms of fines? I heard something about 16 down to 4. So, it's a 1 to 4 ratio concentration factor? -------------------------------------------------------------------------------- Pierre Beaudoin, Detour Gold Corporation - COO [64] -------------------------------------------------------------------------------- Yes. Well, that's not the concentration factor. The concentration factor on the grade is a ratio of 0.62 over 0.45. So, one-third, maybe. But, as far as what we salvage out of the low-grade stockpile is roughly 25%. -------------------------------------------------------------------------------- Mike Parkin, Desjardins Securities - Analyst [65] -------------------------------------------------------------------------------- Okay. And then you're then screening that further to get that grade concentration factor and that's what you're putting in the mill? -------------------------------------------------------------------------------- Pierre Beaudoin, Detour Gold Corporation - COO [66] -------------------------------------------------------------------------------- No. We get the increase in grade directly from the method we're reclaiming that material. So, there is no screening. It's from the truck directly to the gyro and we get this kind of a very positive natural increase in grade. -------------------------------------------------------------------------------- Mike Parkin, Desjardins Securities - Analyst [67] -------------------------------------------------------------------------------- Okay. Okay. No, that's good. That's it for me. Thanks, guys, and good quarter. -------------------------------------------------------------------------------- Paul Martin, Detour Gold Corporation - President, CEO & Director [68] -------------------------------------------------------------------------------- Thank you. -------------------------------------------------------------------------------- Operator [69] -------------------------------------------------------------------------------- (Operator Instructions). Steve Parsons, National Bank Financial. -------------------------------------------------------------------------------- Steve Parsons, National Bank Financial - Analyst [70] -------------------------------------------------------------------------------- Yes. Good morning, guys. Just some clarification on the dilution, as well. Pierre, just so I get this clear, are you looking to -- I suppose you're looking to control dilution even more. Are you able to do this and still maintain the same mining rates? -------------------------------------------------------------------------------- Pierre Beaudoin, Detour Gold Corporation - COO [71] -------------------------------------------------------------------------------- Yes, we are. And the reason why we think, Steve, the mining rate is going to go down in Q3 is, first of all, we have to change 30 important components on one of our big shovels. This is going to impact our mining rate. Second, we need to focus our effort even more around the Campbell pit, which we're doing now. And, around the Campbell pit, it's far more narrow so it's going to impact our mining rate. And the third reason I would say is we want to service the TMA a little more. For the moment we're, on the TMA construction we let the contractors do their part of the work, but as soon as they're finished, we will want our team with our 795 to deliver more tonnage to the TMA and these are very long hauls. And so, these are the three main reasons why we think the mining rate is going to go down. But we don't believe that a better control of dilution is going to have any significant impact on the mining rate. It's going to have a small one, but nothing major. -------------------------------------------------------------------------------- Steve Parsons, National Bank Financial - Analyst [72] -------------------------------------------------------------------------------- Okay, great. Thanks for that. One question, as well, is just with respect to the higher grades you saw in June. Where was that coming from? Was that coming from the east zone? -------------------------------------------------------------------------------- Pierre Beaudoin, Detour Gold Corporation - COO [73] -------------------------------------------------------------------------------- What's that? -------------------------------------------------------------------------------- Steve Parsons, National Bank Financial - Analyst [74] -------------------------------------------------------------------------------- With respect to the higher grades that you saw in June, was that coming from the east part of the pit, Campbell zone? -------------------------------------------------------------------------------- Pierre Beaudoin, Detour Gold Corporation - COO [75] -------------------------------------------------------------------------------- No. I would suggest that it actually came from the west part of the pit where we've seen, every time we mine there, we've seen the model behave a little better than expected. It probably has to do with capping, but I'm speculating a bit here and so take this into context. -------------------------------------------------------------------------------- Steve Parsons, National Bank Financial - Analyst [76] -------------------------------------------------------------------------------- Great. Perfect. Thank you very much. -------------------------------------------------------------------------------- Operator [77] -------------------------------------------------------------------------------- Anita Soni, Credit Suisse. -------------------------------------------------------------------------------- Anita Soni, Credit Suisse - Analyst [78] -------------------------------------------------------------------------------- Hi, just a question, a follow-up with regards to the Phase 1 versus Phase 2. I think I read that it was 1.4 million tonnes that was coming from the Phase 2. Is that correct? -------------------------------------------------------------------------------- Pierre Beaudoin, Detour Gold Corporation - COO [79] -------------------------------------------------------------------------------- From Phase 2 we have, yes, 1.4 million tonnes coming in the quarter. That's correct. -------------------------------------------------------------------------------- Anita Soni, Credit Suisse - Analyst [80] -------------------------------------------------------------------------------- And what was the budget that you had originally? -------------------------------------------------------------------------------- Pierre Beaudoin, Detour Gold Corporation - COO [81] -------------------------------------------------------------------------------- This was, 4Q to this was pretty much on budget. As you will remember, Q1 was far below budget and our goal has always been, when we saw that in 2Q, 3Q, to relocate one of the 6060 in this area and then go hard from then on. So, in Q3 we think that we're going to be mining at rates that are going to above the budget in the Phase 2. -------------------------------------------------------------------------------- Anita Soni, Credit Suisse - Analyst [82] -------------------------------------------------------------------------------- Okay. So, to make up for Q1. -------------------------------------------------------------------------------- Pierre Beaudoin, Detour Gold Corporation - COO [83] -------------------------------------------------------------------------------- Yes. -------------------------------------------------------------------------------- Anita Soni, Credit Suisse - Analyst [84] -------------------------------------------------------------------------------- Okay, thank you. -------------------------------------------------------------------------------- Operator [85] -------------------------------------------------------------------------------- Killian Charles, Laurentian Bank Securities. -------------------------------------------------------------------------------- Killian Charles, Laurentian Bank Securities - Analyst [86] -------------------------------------------------------------------------------- Hi, guys. Thanks for taking the call. I just want to get an idea; if we look at, let's say, the mining rate in Q2 of 280,000 tonnes and then going to 290,000 tonnes -- I know that won't be done in Q3 -- but, where do you sort of see the main improvement coming from? Is it a question of blasted inventory or is there shovel rates that you sort of still see squeezing out a couple more tonnes out of there? Where do you see the main improvement coming on that front? -------------------------------------------------------------------------------- Pierre Beaudoin, Detour Gold Corporation - COO [87] -------------------------------------------------------------------------------- Okay. First of all, we're very happy with the progress of the team on blasted inventory. We don't see that we're going to gain a lot by increasing the blasted inventory. We obviously need to continue to focus on drilling rate and we're certainly doing this. But the core of the benefit that, as we've gone from the blasted inventory, we have actually been able to get that. Going forward, it's going to be -- when you get 280,000 tonnes and you want to go to 300,000 tonnes, 320,000 tonnes per day, it's not going to be a single thing. We're out of the easy part of that, right? It's going to be all little things. It's going to be all truck. It's going to be efficiency. It's going to be the digging rate. It's going to be operating time. It could be oxy (ph) change. We have actually implemented in Q2 under the direction of Chuck, at site, a new department which is focusing entirely on business improvement and efficiency of the operation. And this is the kind of stuff that we're going to have to do going forward to bring our mining rate to the next level because the easy gains have been done now. Now we're getting into really the improvement of the operation. So, it's not going to be a single thing. It's going need to come from multiple fronts. -------------------------------------------------------------------------------- Killian Charles, Laurentian Bank Securities - Analyst [88] -------------------------------------------------------------------------------- Okay. So, you really comfortable where the mine is right now, then. -------------------------------------------------------------------------------- Pierre Beaudoin, Detour Gold Corporation - COO [89] -------------------------------------------------------------------------------- We're very happy with the progress of the mine. Actually, as we've said at the beginning of the year, we wanted to be able to show something like 268,000 tonnes per day by Q4 and we've been able to do that by Q2. Now, the key is to return to these mining rates as soon as possible, but we don't want to get crazy about mining rates. It's not just about mining rates. It's about the quality of the mining rate. It's about the quality of the (inaudible), the control of the dilution. It's good mining practice that we need to implement and, really, the progress has been amazing, but we need to crystalize it now. -------------------------------------------------------------------------------- Killian Charles, Laurentian Bank Securities - Analyst [90] -------------------------------------------------------------------------------- Alright. Well, good job, guys, and thank you very much. -------------------------------------------------------------------------------- Operator [91] -------------------------------------------------------------------------------- There are no more questions at this time. I will now hand the call back over to Paul Martin for closing remarks. -------------------------------------------------------------------------------- Paul Martin, Detour Gold Corporation - President, CEO & Director [92] -------------------------------------------------------------------------------- Okay. Thanks, everyone, for joining us on the call today. Despite the most recent gold price volatility, Detour Gold outperformed in the second quarter and should continue on this path with increasing gold production and declining costs. It's a good time to be working for Detour and a good time to be a shareholder. And, with that, we wish everyone an enjoyable and safe summer. And, operator, if you could please close the line. -------------------------------------------------------------------------------- Operator [93] -------------------------------------------------------------------------------- This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.
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