$DGC #DetourGold crashes as costs increase #Gold

Review of operating costs showed the 2017 plan to be too optimistic, and the company has guided that overall LoM total site costs are likely to increase 8–14%, to $810–$850/oz. …the mining cost has hovered around C$3.00/tonne, even as the mining rate increased from 210Ktpd to 300Ktpd over the last few years. The economies of scale have not materialized, and despite spreading the fixed costs over more tones, the variable cost increases negated that decrease. 

This is paradigm capital’s note:
Cost Pressures Overshadow Near-Term Production Increases in LoM Plan Review
Investment Thesis. Detour Gold is an Intermediate gold producer with the flagship Detour Lake mine in northern Ontario. We view the mine as a world-class asset with annual gold production expected to be in the 550–700Koz range for 20+ years. Due to the nature of the orebody there are some years of lower profitability in the near-term, and we believe the long-term value of the world-class asset and years of stronger profitability longer-term is not fully recognized.
Event
Detour released its Q1/18 financials and the preliminary results of a review of an updated life-of-mine (LoM) plan for the Detour Lake operations on Thursday and held an Analyst Workshop on Friday. While Detour was successful in identifying opportunities to increase production in 2019–2020, this was overshadowed by a review of operating costs suggesting permanent increases to the estimates provided in last year’s LoM plan.
Highlights
 Q1 Results Buoyed by Grade, but 2018 Guidance Downgraded
 Detour’s Q1 financial results were good, with 157.1Koz of gold produced at an AISC of $1,072/oz. However, operationally, the quarter was weak with the average total mining rate (ore & waste) running at ~250Ktpd versus the expected ~300Ktpd rate due to equipment issues (major shovel failure). The better-than-expected grade (1.17 g/t) from mining the area of the Campbell pit crown pillar helped offset the operational difficulties to deliver the good financial results for Q1. Detour has downgraded its 2018 guidance to 595–635Koz and an AISC of $1,200–$1,280/oz (previously 600–650Koz @ $1,050–$1,150/oz).
 Updated LoM Plan Improves 2019–2020 Production, But Costs Are Higher 
Detour had been reviewing its 2017 LoM plan to assess if it was possible to increase production in 2019 and 2020, as the production had been forecast to dip to ~550Koz and the lower grades and higher strip ratio in those years, significantly reduced cash flow. While the review did demonstrate that it will be possible to increase the production to ~600Koz in those years, the review of operating costs showed the 2017 plan to be too optimistic, and the company has guided that overall LoM total site costs are likely to increase 8–14%, to $810–$850/oz. This cost review was based on the experiences to date, which have been “lack of cost reductions” rather than increases; for example, the mining cost has hovered around C$3.00/tonne, even as the mining rate increased from 210Ktpd to 300Ktpd over the last few years. The economies of scale have not materialized, and despite spreading the fixed costs over more tones, the variable cost increases negated that decrease. Detour did provide the “big-picture” guidance of the new LoM plan, although the review is not yet finalized, and the official new plan is expected to be released in June.
 No Near-term Strain on the Balance Sheet Envisioned
As at the end of Q1/18, Detour has $152.5M in cash and long-term debt of $258.5M, maturing in 2020–2021. The concern of the 2017 LoM plan was the low cash flow in 2019–2020; this has partially been addressed by the increase in anticipated gold production in those years. We do not yet know how much of the improved cash flow from increased production will be offset by higher operating costs, but we anticipate it should be a net improvement in cash flow for 2019–2020 — to be confirmed when the LoM plan is released in June. With net debt of only ~$108M and a cash-flowing asset producing over 500Koz of gold annually (with a ~20-year mine life), we see no immediate financial stress, and do not foresee the necessity to raise money through an equity issue, particularly after the 32% decline in the share price following the release of this news.
Valuation & Conclusion
We have made preliminary adjustments to our forecasts for Detour. Based on the broad guidance, we have increased our gold production by ~50Koz for both 2019 and 2020. As a first pass, we have simplistically applied an 11% increase to our prior operating cost assumptions (the mid-point of the LoM increase suggested in the guidance). Based on this, our NAV (5% DCF, priced at spot gold $1,323/oz) declines from C$20.30 to C$17.34/sh, or about 16%. We apply a 0.9x P/NAV multiple to the NAV calculated at our target $1,450/oz gold price to arrive at a new target price of C$19.85 (was C$25.50). While there are some challenging years ahead, there are also some of the mine’s best years still ahead. We believe the 32% share price decline on Friday was an overreaction to a market loathe for negative surprises from gold producers. The share price decline was double that of our preliminary estimate of the decline in NAV, and we expect some of this to be recovered in the next few trading days, but not all, as some uncertainty remains until the full new LoM plan details are released in June, and the company will be in the investor penalty box for such a significant change in LoM guidance over the plan released just one year ago. Nevertheless, in our opinion, if the share price remains at these depressed levels, it is possible that Detour could become a takeover candidate for a senior gold producer looking to add a world-class asset to its portfolio. We maintain our Buy rating.

Gold & Precious Metals
  • Detour Gold Corp: Cost Pressures Overshadow Near-Term Production Increases in LoM Plan Review
    [NAV: $17.34<img src="https://www.paradigmcap.com/images/default-source/default-album/down_arrow.png?Status=Temp&sfvrsn=da0d0b0f_2&quot; alt="Down" width="9" height="9" hsp,="" $19.85="" tp<img="" buy]
    Event: Detour released its Q1/18 financials and the preliminary results of a review of an updated life-of-mine
    (LoM) plan for the Detour Lake operations on Thursday and held an Analyst Workshop on Friday. While
    Detour was successful in identifying opportunities to increase production in 2019-2020, this was
    overshadowed by a review of operating costs suggesting permanent increases to the estimates provided in
    last year ‘s LoM plan.
    Analyst: Don Blyth

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from MasterMetals http://bit.ly/2vX879Z on April 30, 2018 at 04:32PM

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Dr. #Copper: Sell in May?

Comment from GMR in Sydney on #Copper

Sell in May?

 

Though often incorrect, so-called sell in May has a slight tinge of truth to it, at least with respect to copper prices. On average over the last 10 years the worst month of the year for prices is May, with prices averaging -3.15%. Though we remain firm believers in the metals long-term fundamentals, it’s fair to say that there do appear some shorter-term risks. For example:

 

Net Longs have collapsed:

 

 

And inventory levels are reasonably high:

 

 

Bonded inventories have also been increasing, from ~435kt in November to ~475kt now. Whether these indicators actually lead to a price correction is debatable, but at the very least it does suggest some caution is warranted. Looking at the sector on our numbers:

 

Copper Sector Valuations:  

 

 

Not overly cheap as a whole, with producing copper M&A having historically been done at 1.1x NPV

from MasterMetals https://ift.tt/2GWY85B on April 12, 2018 at 10:40PM

Dr. #Copper: Sell in May?

Comment from GMR in Sydney on #Copper

Sell in May?

 

Though often incorrect, so-called sell in May has a slight tinge of truth to it, at least with respect to copper prices. On average over the last 10 years the worst month of the year for prices is May, with prices averaging -3.15%. Though we remain firm believers in the metals long-term fundamentals, it’s fair to say that there do appear some shorter-term risks. For example:

 

Net Longs have collapsed:

 

 

And inventory levels are reasonably high:

 

 

Bonded inventories have also been increasing, from ~435kt in November to ~475kt now. Whether these indicators actually lead to a price correction is debatable, but at the very least it does suggest some caution is warranted. Looking at the sector on our numbers:

 

Copper Sector Valuations:  

 

 

Not overly cheap as a whole, with producing copper M&A having historically been done at 1.1x NPV

from MasterMetals https://ift.tt/2GWY85B on April 12, 2018 at 10:40PM

What are the steps to finding a #Mine? #Exploration #Infographic

Courtesy of: Visual Capitalist

Finding a new deposit is tough, but here’s how to better your odds. This infographic shows the steps of mineral exploration, from prospecting to production.

Infographic: The Mineral Exploration Roadmap:

The MasterMetals Blog

@MasterMetals

from MasterMetals http://ift.tt/2HAQihP on March 14, 2018 at 03:13PM

#Lithium Expansion Talk Fills The Room @Bmo #Mining conference #BatteryMetals

@media print { body { margin: 2mm 9mm; } .original-url { display: none; } #article .float.left { float: left !important; } #article .float.right { float: right !important; } #article .float { margin-top: 0 !important; margin-bottom: 0 !important; } } Mining Journal – Lithium Expansion Talk Fills The Room At Bmo

Lithium expansion talk fills the room at BMO

The organisers of the BMO Metals and Mining conference added a new age metals stream to its annual event in Florida, US, this year and it ended up standing out from the crowd.

The bulk of presentations in the diversified, gold, silver, base metals and diamond streams were packed with mentions of shareholder returns, free cash flow and (at a push) brownfield expansions, but growth and investment were front and centre of the battery raw materials space. 

This was especially so on the lithium development and production side, with “essentially every company … in the middle of, or looking for funding to drive new capacity as the industry looks to satiate large expected demand increases”, the bank’s analysts said. 

Only FMC were up on stage presenting at the Florida conference, so we’re guessing there were a few more companies in the crowd.

Unsurprisingly given the recent Morgan Stanley report that has recently been gaining attention, the big lithium debate gripping the conference was “whether the magnitude of the upcoming supply response will be appropriate or too large, and how/when that would impact prices”, BMO analysts said.

Morgan Stanley was clearly in the too large camp, but FMC was bullish on mid-term demand and price prospects, according to the analysts. That is hardly surprising with the company looking to list around 15% of its business in an IPO in New York later this year.

Chile’s SQM (US:SQM), meanwhile, told the Financial Times this week that it only planned to expand production from its Atacama brine deposits beyond 2019 based on “market conditions”.

This general sense of bullishness was reciprocated throughout the bulk of other battery raw materials. 

“Most participants seem comfortable with the longer-term nickel case even with rising supply over the coming year, while many of the polymetallic miners were keen to highlight any cobalt units they could extract, however small,” the analysts said.

Yet, the discussion around DRC risk for cobalt was surprisingly minimal. 

“What was apparent to us was the thirst for knowledge in this area among both investors and corporate, and the recognition that the rate of technological change in this end-use sector is much faster than seen in traditional sources of metal demand such as construction and infrastructure,” BMO’s analysts said. 

The discussions have also evolved from simply focusing on battery chemistry alone to considering the “knock-on effects on overall utility structures, charging technology and consumer behaviour”.

One would expect that new age metals stream to grow in size by next year.

See the @MiningJournal article online here http://www.mining-journal.com/events-coverage/news/1316010/lithium-expansion-talk-fills-the-room-at-bmo/?utm_medium=Email&utm_source=MJ&utm_campaign=Top-5

from MasterMetals http://ift.tt/2tEPeHt on March 12, 2018 at 10:28AM

Declining grades don’t help #Copper’s supply picture $GLEN $RIO $TRQ $FM $TKO $FCX $HBM

This from GMR

Good Morning/Afternoon, looking back at quarterly copper grades today:

 

Grade decline (Coppers)

 

Below is a summary of Q4 processed grades vs. reserve grades across the copper sector. In-line with Q3 overall average processed grades were 15% above reserves, but ranging from -38% to +100% at the mine level. At the corporate level the range is -38% (TRQ) to +74% (HBM), and while there’s no implied criticism because you can only mine what’s in front of you, clearly grades should normalise over time, easing or tightening operating margins. In summary:

 

Q4 Processed Cu Grades vs. Reserves:

 

 

Much like in Q3, on a mine level the highest in Q4 were Constancia (80%), Aktogay (+66%) and Las Bambas (+59%), though by importance we can’t overlook the gradual decline that is slowly occurring at Escondida (+46%), and indeed Codelco where head grades have fallen from 1.6-1.8% in the 1970s to ~0.7% today. Declining at around 0.017% each year, that’s ~40ktpa of copper loses each year. Or put another way, Codelco needs to add 6.7Mtpa of mining and milling capacity each and every year to offset grade decline.

 

Although there is an argument to suggest owning those on the left of the chart over those on the right (over the long-term anyway), it clearly isn’t that simple given things like the impact dilution can have on quarterly performance (e.g. at MLX), or reconciliation (e.g. HBM). However to focus on the two outliers:

 

Hudbay: Quarterly head grades were 0.54% at Constancia vs. a 0.30% reserve grade, more or less in-line with the mine plan. However while the grade decline is going to be painful when it comes, there are two reasons to remain optimistic at the moment – Namely the introduction of Pampacancha ore, plus the ongoing positive grade reconciliation.

 

Constancia mine plan:

As illustrated above, mining at Pampacancha is expected to begin later this year, providing a nice copper grade sweetener, as well as additional precious metals. It postpones the inevitable grade decline until 2022. In terms of grade reconciliation, the last technical report put the grade reconciliation at 117% on grade, and HBM has since said the copper grade bias is expected to exist through the ore body. As a result there will be a revision to reserves and resources in April, though this is expected to be less than the actual reconciliation achieved to date.

 

Turquoise Hill: Q4 head grades were 0.53% vs. a reserve grade of 0.86%, in-line with the mine plan. However as the underground comes on-line grades are going to move substantially higher, to nearly double the reserve grade. In summary from the last technical report:

 

 

It might be a few years away yet, but at some point you’d have think TRQ is due a big re-rating.

 

 

from MasterMetals http://ift.tt/2FpQkct on February 23, 2018 at 03:35PM

Doug Casey on why he’s buying #Gold & #MiningStocks

There could be a buying panic in gold and it could go much higher. We’re in a new bull market for gold at this point, but nobody cares. Or even knows that’s true. The same is true for silver. Although, silver is primarily an industrial commodity. It’s the poor man’s gold for many reasons.

Justin: How much higher could gold head?

Doug: Well, these things usually move in a hyperbolic curve. They start out slowly. Then, they accelerate. Same type of thing we saw with cryptocurrencies.

I think gold will do the same, although not to the same extent. My prediction by the end of this year is that gold will hit $2,000. In 2019, $3,000. In 2020, $4,000. By the time this bull market peaks, gold could reach $10,000. But I hate to say things like that…because it sounds so outrageous.

But look at the number of dollars in existence ($3.635 trillion in the M-1 money). Divide that by the 260 million ounces of gold the U.S. Government is supposed to own, and you get a gold price of $13,982/ounce.

Look at the number of dollars that are outside the U.S.—$10 trillion, $20 trillion, who knows?—and that liability is growing by $50 billion annually with the balance of trade deficit.

Money is a medium of exchange and a store of value—it shouldn’t also be a political football, and a means for the State to finance itself. Gold itself should be used as money. Remember that the dollar—like the franc, the pound, the mark, and what-have-you—were just names for a specific quantity of gold.

So a six-to-one shot from here is not at all unreasonable over the next several years. And that would mean very good things for gold stocks.

Justin: So, it’s safe to assume you’re buying gold stocks?

Doug: Resource companies are essentially the only stocks that I’m buying right now. And that’s because nobody’s interested in them. They’re very cheap. Of course mining itself is a crappy business. You can’t invest in it, only speculate. But it’s a great speculation now.

I probably do, on average, a private placement a week in mining stocks, which is quite a lot.

The only thing I’m afraid of is having too many stocks. You can’t effectively monitor more than 15 or 20 stocks. And then you lose track of them. You can’t keep up. You forgot why you bought them.

Unless I really like the stock and I’m planning on following it in particular, I sell the basic stock after the four-month hold period and keep the warrants in case I get lucky.

Justin: What else are you buying right now?


Doug: Well, I buy gold coins whenever the opportunity presents itself. I try to be disciplined about that. I just put them away and forget they exist. Unlike gold stocks, you can do that with gold coins.

from MasterMetals http://ift.tt/2EMlj4H on February 19, 2018 at 12:05AM