Is Detour Gold Stock Finally a Buy?

It looks like the bad times are over for Detour Gold [stock_market_widget type="inline" template="generic" color="default" assets="DGC.TO" markup="(TSX: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"]. Shares of the gold miner have started gaining ground ever since it reported its fiscal first-quarter results in early May.

Detour Gold easily beat Wall Street’s revenue and earnings expectations for the first quarter. Its revenue was up 2.3% year over year to $206 million, and adjusted earnings of $0.10 per share were a couple of cents higher than analysts’ expectations.

But will Detour Gold be able to sustain this momentum for the remainder of the year? Let’s find out.

What’s Working for Detour Gold?

Detour Gold sold 157,723 ounces of gold during the first quarter of 2019, up from the prior-year period’s figure of 151,060 ounces. However, the average realized price per ounce of gold fell to $1,304 an ounce from $1,330 an ounce in the year-ago period.

Detour managed to keep its costs under control even though the head grade declined.

Detour Gold’s growth would have been much more attractive but weak gold prices played spoilsport. Detour was, however, able to keep costs in check. The company clocked total cash costs of $739 an ounce during the quarter as compared to $744 an ounce in the year-ago period.

The company’s all-in sustaining costs also fell to $1,044 an ounce during the quarter as compared to $1,072 an ounce last year.

What’s even more impressive is that Detour managed to keep its costs under control even though the head grade declined. Detour’s head grade for the first quarter of 2019 fell to 1.0 grams per ton of gold, down from 1.17 grams per ton of gold in the prior year period.

That’s because Detour enjoyed higher recovery rate and mill throughput during the first quarter of 2019 as compared to the year-ago period. If the company manages to keep up its cost control initiatives for the rest of the year thanks to its focus on improving efficiency, don’t be surprised to see it deliver positive earnings surprises.

More Positives to Look Out for

Detour Gold’s guidance for the year remains unchanged. The company still expects to produce between 570,000 ounces and 605,000 ounces of gold. Cash costs are expected in the $790-$840 an ounce range, while all-in sustaining costs are expected between $1,175 and $1,250 an ounce.

The numbers aren’t favourable when compared to last year, but Detour has proved that it has the potential to outperform expectations as its first-quarter results indicate. Analysts currently expect Detour Gold’s revenue to remain flat year over year, while adjusted earnings will decline in 2019.

However, Detour can be helped by a potential improvement in gold prices because of the ongoing macroeconomic tensions. It is estimated that the Federal Reserve will lower interest rates because of the economic uncertainty and the U.S.-China trade war.

According to Kitco:

Not only will easing monetary policy help drive gold prices higher by the end of the year, but Howell said that as the global economy slows, there will be a run into safe-haven assets like U.S. Treasuries. He explained that with negative bond yields in Europe and Asia, American Treasuries continue to offer attractive value for foreign investors.

As such, Detour Gold can find catalysts as the year progresses that will help it deliver improved performance and potentially lead to more stock upside.

Harsh Singh Chauhan has a wealth of experience evaluating publicly-traded companies across several verticals, including technology, oil and gas, retail, and consumer goods. His financial writing has been published across platforms such as The Motley Fool, TheStreet, and Seeking Alpha. Harsh's philosophy is to find great businesses for the long run based on company fundamentals and industry prospects. Address: 682 Indian Road, Toronto, Ontario, M6P 2C9. Phone: 416-721-8257.


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