Detour Gold debt deal provides cash cushion - analyst

Detour Gold adds to financial security as it brings its Detour Lake gold project up to full steam.

Looking at a variety of scenarios for early 2013, Haywood analyst Kerry Smith shows that with the credit facilities to rely upon, Detour would have between C$104 million to C$149 million left to play with assuming production between 150,000 ounces to 200,000 ounces gold and a gold price of $1,500 or $1,600 per ounce. The scenarios included C$120 million Detour has left to spend, according to the gold miner's plans, C$80 million in sustaining capital and the C$242 million it still had in the bank at the end of 2012.
This week Detour Gold got its cushion, securing C$135 million in credit facilities. Consider it breathing room to deal with the unforeseen.

As Haywood Securities shows in a note to investors on Wednesday the new debt goes some way to ensuring Detour can cover projected expenses as it starts to churn out gold in the first half of this year.

Investors will find such a cushion attractive. This is especially true these days given so many mine construction projects have lately gone awry becoming far more expensive at the last minute. Indeed, access to debt in these market is no sure thing. Thus, being able to get it in the middle of a mine ramp-up might be seen as a vote of confidence, at least as far as the bankers are concerned.

Haywood saw it thus, noting that they “view it as a further endorsement of the solid progress we believe is being made in commissioning.” The debt is on a three year term at a five percent interest rate and, assuming it is fully used, adds to about $513 million in debt already on Detour’s books.

If the price of gold and Detour’s projections hold strong, it’s fair to say the new gold miner could soon be churning out more than gold. Haywood projects Detour producing between 200,000 to 250,000 ounces gold at cash costs, this year, between $800 to $900 per ounce gold.

Next year Detour ramps up to 610,000 ounces gold at $735 per ounce, Haywood estimates. If the price of gold holds steady or appreciates then it will mean a fair sized margin on a fair number of gold ounces emanating from one of Canada’s newest gold mines