Detour Gold shares jump after new mine plan

Wed Feb 5, 2014 12:07pm EST
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Feb 5 (Reuters) - Detour Gold Corp shares jumped on Wednesday after the company announced a revised plan for its Detour Lake mine, including slightly higher production than previously forecast.

The Toronto-based company is ramping up Detour Lake, its only mine, and operating costs at the low-grade operation in northeastern Ontario are expected to be relatively high during 2014.

Concerns about costs and fears that the miner could be forced to raise more money have weighed heavily on shares over the last year.

But in a note to clients on Tuesday, TD Securities analyst David Earle said the risks Detour faces are more than priced into its shares, and reiterated a "buy" rating.

Detour said it expects to produce an average of 660,000 ounces of gold per year over a 21.7 year mine life, up from a previous estimate of 657,000 ounces per year over 21.5 years.

RBC Dominion Securities analyst Dan Rollins said in a note to clients that Detour's estimated production over the next five years - 600,000 ounces per year - was better than expected.

Detour's shares rose 4.4 percent to C$7.06 in early trading on the Toronto Stock Exchange, as many of its gold mining peers were lower or little changed.

The stock had fallen nearly 70 percent over the 12 months to Tuesday's close, but was up 65 percent from the beginning of 2014. Detour said last week it had reached a new power contract that would lower costs in 2014.

Asked on a call with analysts and investors about a completion test coming up in the autumn, interim Chief Executive Paul Martin said Detour is "comfortable" with the test.

"The completion test is to give a broad parameter that the mine is operating as it was designed, and we're comfortable with those tests," he said.

Credit Suisse analyst Anita Soni wrote in November that Detour was at risk of failing, which would put it in default under the terms of a credit facility. (Reporting by Allison Martell; Editing by Stephen Powell)