Detour Gold Founder and CEO, Gerald Panneton, has abandoned ship and resigned from the struggling gold miner. Detour Gold (DGC:TSX) is having the kind of year that makes most TSX Venture junior gold stockslook good. Impossible as that sounds, Detour Gold has lost close to 90% of its value this year, falling from a high of $26.50 to a low of $2.88 this morning.
Detour Gold has come under increased pressure as it has yet to prove it can reduce cash costs for production at its newly producing gold mine in Northern Ontario.
The story has been making headlines in the US, as Detour Gold’s biggest investor is hedge fund firm Paulson & Co. John Paulson who recently stood by his strong allocation to gold, must be feeling the heat this morning as Detour’s shares plummeted more than 30% in value.
So much of success in mining comes down to low production costs. Low costs act as an insulator during rough patches or cyclical bear markets and allow for monster profits during boom times.
Detour Gold’s flagship asset, the Detour Lake Gold Mine, achieved its first gold pour in February 2013. While it didn’t select the best time to enter production, Detour shares in its unlucky timing with many junior and senior gold producers.
The company has reported its year-round open pit operation will eventually host 500 employees. The resource has more than 15.6 million ounces in reserves, putting Detour Lake on track to become Canada’s largest operating gold mine.
All the gold reserves in the world aren’t worth anything if it costs as much or more to produce the metal than it sells for. Canadian resource investors are beginning to wake up to this reality and are dumping shares of high cost producers.
Detour Gold reported on November 7th that operating costs will decrease as it improves efficiency and raises the mine’s ore-processing rate to the designed capacity of 55,000 tons a day. Needless to say, investors are skeptical Detour will be able to achieve this.
Barrick Gold, which by many accounts has the lowest cost of production amongst the majors, reported all-in cash costs of $919 per ounce in the first 9 months of 2013. Its adjusted operating costs, on the 5.5 million ounces it has produced this year, were an envious $564 per ounce.
Even with some of the lowest cash costs in the business, Barrick is down more than 50% this year.
Barrick Gold – 1 Year Chart
Shares of Detour Gold dropped more than 30% Monday to a low of $2.88 on the TSX. The company has now dropped below the $3.50 level which it went public at in 2007.
Detour Gold traded near $40 per share in 2011 and has had one of the great TSX gold mining stock collapses.
Detour Gold – 1 Year Chart
On November 25th 2013 Paul Martin, the company’s Chief Financial Officer, was appointed as interim Chief Executive Officer. He failed to provide much detail on Panneton parting ways, but did comment that, “It would be fair to say that none of us are satisfied with the share performance. What we need to do is to deliver on our operating parameters to improve that situation.”
When not only the CEO, but the company’s Founder throws in the towel it really spooks investors and sends a clear message.
Investors are likely fearing or speculating that Detour Gold will have to issue shares to raise capital in the not too distant future. To improve its balance sheet, the price of gold will need to have a serious rise in price or its cost of production will have to diminish.
In June of 2013, the capital markets stepped up with $176 million for Detour Gold as the company completed a share offering at $8.75 per share!
Resignations from junior and senior Canadian gold companies will likely continue as the gold price continues to show weakness making it difficult for companies to achieve profitability. Gold peaked in September 2011 and is approaching its third year of consolidation.
