Detour Gold’s (TSX: [stock_market_widget type=”inline” template=”generic” color=”default” assets=”DGC.TO” markup=”{symbol} {currency_symbol}{price} ({change_pct})” api=”yf”]) stock been in the dog house for close to three years now. The Toronto-based miner has crashed big time since peaking in mid-2016, when the stock was trading around C$34, to around C$13. However, Detour shares have shown some signs of life since mid-December when hedge fund Paulson & Co. managed to win a proxy battle against the company’s previous board of directors.
[stock_market_widget type=”chart” template=”basic” color=”blue” assets=”DGC.TO” range=”2y” interval=”1mo” axes=”true” cursor=”true” api=”yf”]But with that now out of the way, will Detour be able to sustain its newly-found momentum on the stock market with the help of solid financial results? Let’s find out.
Detour’s Production and Costs Needs Improvement
Detour closed 2018 on a high as it reported record gold production in the fourth quarter. The company produced 158,200 ounces of gold in the final quarter of 2018, taking its annual production to 621,128 ounces. Its 2018 production was 9% higher than the preceding year, which is probably why analysts expect the company’s top line to jump 7.6% for the year when results are released on March 7.
However, Detour could take a step back this year due to a production decline. The company recently updated its 2019 production guidance, stating it expects to produce between 570,000 and 605,000 ounces of gold. That represents a 5.4% decline when compared to 2018 levels, which is probably why the company’s top line is expected to drop almost 2% in 2019.
At the same time, analysts project that Detour’s earnings will drop from an estimated C$0.36 per share in 2018 to C$0.26 a share this year. Now that’s not surprising as Detour had announced a year ago that its life-of-mine costs at the Detour Lake open pit mine will increase from the prior estimate of $747 an ounce to an estimated $810-$850 an ounce. That announcement had sent Detour’s stock down 30% in a single day.
The company had also deferred the development of the North Pit at the Detour Lake mine to the year 2026 from the original 2019-2023 plan, delaying 150,000 ounces of production in the process. Additionally, Detour’s production will struggle on account of lower grades this year, contributing to higher costs. The company’s head grade averaged 1.04 grams per tonne of gold in 2018 as compared to 0.93 g/t in 2017, but once again it is expected to range between 0.90 and 1.00 g/t this year.
Not surprisingly, Detour anticipates cash costs of $790 to $840 per ounce this year and all-in sustaining costs of $1,175 to $1,250 per ounce. For comparison, Detour’s total cash costs for the first nine months of 2018 stood at $754 an ounce and all-in sustaining costs were $1,181 an ounce. So a higher cost profile is one of the reasons why the company’s earnings are expected to take a substantial hit this year.
Detour’s Stock Price Depends on Management
Investors have been excited about a new board coming into place at Detour Gold, as evident from the recent uptick in the stock price. However, management will have to turn the company’s flagging production and cost profile around to sustain the recent momentum and deliver more upside. As such, the company’s upcoming results will be a litmus test as they will play an important role in deciding where the stock is headed for the remainder of the year. If you believe management will improve production and costs, then at the current price Detours stock is a buy.
