Paulson-Backed Detour Plots Supersizing Mine: Corporate Canada – by Liezel Hill (Bloomberg News – May 13, 2014)

http://www.businessweek.com/

Everything about Detour Gold Corp. (DGC) is big, from its shovels that scoop up 100 tons of rock at a time to its index-leading share price. Now it’s exploring ways to make Canada’s largest gold mine even bigger.

The company, whose biggest shareholder is billionaire John Paulson’s hedge-fund firm, plans to reach full production at its Detour Lake mine in northern Ontario at the end of the year while it considers options to boost output.

“Our priority remains the ramp up, but it’s not our sole priority,” Chief Executive Officer Paul Martin said in an interview at Bloomberg’s Toronto office. “The next step is to look at our near-term organic growth opportunities.”

Detour Lake, built for C$1.5 billion ($1.4 billion) on 630 square kilometers (243 square miles), is grand by several parameters. Trucks with capacity to each carry 300 tons of rock rumble through the growing pit and the inside of the mill is as large as two football fields, according to Martin.

The size is partly a function of the mine’s lower grades: the company must move about four tons of rock to get one gram of gold. That means the more ore Detour can mine and process, the more profitable the operation becomes.

While gold’s decline last year — the biggest drop in more than three decades — spurred some producers to trim output and target the most profitable ounces, that doesn’t make sense for Detour.

‘Incentivized to Increase’

“At a big mine like this, it’s economies of scale,” Martin said. “The lower the gold price goes, you’re actually incentivized to increase production.”

The mine’s size and relatively long production life of 21 years make Toronto-based Detour stand out among single-mine producers. That’s especially true after Osisko Mining Corp. agreed April 16 to a C$3.7 billion takeover by Canadian competitors Yamana Gold Inc. and Agnico Eagle Mines Ltd. The deal followed a bidding war sparked by a hostile bid for Osisko from Goldcorp Inc., the largest gold producer by market value.

Osisko’s Canadian Malartic mine in Quebec is similar to Detour Lake in size, location, the length of its operating life and because both are bulk-tonnage pit operations, Martin said.

The bidding war for Osisko may have helped push up Detour’s share price. The stock has increased 171 percent this year in Toronto, making it the top performer on the benchmark 244-company Standard & Poor’s/TSX Composite Index. That’s a turnaround from 2013, when Detour plunged 84 percent.

‘Reasonably Interactive’

Paulson & Co. held about 16 percent of Detour as of March, compared with 11.7 percent at the end of January 2012, according to data compiled by Bloomberg.

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