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Edited Transcript of DGC.TO earnings conference call or presentation 3-May-19 2:00pm GMT

Q1 2019 Detour Gold Corp Earnings Call

TORONTO May 10, 2019 (Thomson StreetEvents) -- Edited Transcript of Detour Gold Corp earnings conference call or presentation Friday, May 3, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Frazer W. Bourchier

Detour Gold Corporation - COO

* Michael James W. McMullen

Detour Gold Corporation - President, CEO & Director

* Sheila Magallon

Detour Gold Corporation - Corporate Controller

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Conference Call Participants

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* Carey MacRury

Canaccord Genuity Limited, Research Division - Analyst of Metals and Mining

* Cosmos Chiu

CIBC Capital Markets, Research Division - Executive Director of Institutional Equity Research & Equity Research Analyst

* John Charles Tumazos

John Tumazos Very Independent Research, LLC - President and CEO

* Joshua Mark Wolfson

Desjardins Securities Inc., Research Division - Analyst

* Kerry Smith

Haywood Securities Inc., Research Division - VP & Senior Mining Analyst

* Michael Parkin

National Bank Financial, Inc., Research Division - Mining Analyst

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Presentation

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Operator [1]

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Thank you for standing by. This is the conference operator. Welcome to the Detour Gold First Quarter 2019 Results Conference Call and Webcast. (Operator Instructions) And the conference is being recorded. (Operator Instructions)

I would now like to turn the conference over to Mick McMullen, CEO. Please go ahead, sir.

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Michael James W. McMullen, Detour Gold Corporation - President, CEO & Director [2]

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Thank you very much, and thanks, everyone, for participating in Detour Gold's First Quarter 2019 Results Conference Call. If we can just go to the next slide, the forward-looking statements and the notes to investors rather than spending time reading this in great detail, I'd just like everybody to read those 2 slides. You will all be familiar with the wording, I'm sure.

So going to Slide 4, the participants in the call today will be myself, the -- as you would all know, new President and CEO; Frazer, who's our COO; and Sheila, who is our Controller. Unless we express otherwise, all the monetary amounts in this presentation are in U.S. dollars.

So Slide 5. I guess it's a bit of a new day. We have a new board for the most part. We've got relatively new management, and I think that the key message I'd like to get across the table today is actually at the bottom of the slide, which is we're going to run this business as a business.

The board and management are very aligned on running this business as a business. I'm on now day 3 in my new tenure. You'd all be aware that we are short of CFO at the moment. Sheila has stepped up as the Controller and is performing very well for us in that role, but we are looking for a CFO. We're well advanced on that search. We hope to secure that candidate sometime in Q2.

I'm out spending a lot of my time talking to shareholders to understand what they define as success for the business. Given that company has gone through a proxy contest, it's pretty obvious that historically, perhaps, the management were not that well connected to what shareholders were actually looking for out of the business. So we're refining a strategy, the vision I guess for the company, but it's impossible for me as a CEO to do that without actually engaging with shareholders and understanding what they define as success for the business.

Going forward, we will have a very strong focus on cost and efficiency and generating a return on investment. Many mining companies I guess tend to sort of focus on the business of the business, not necessarily on actually generating a return for shareholders. And for us to be a long-life stable business, it's really important for us to be able to generate a return on our assets.

In order to do that, we're looking for improvements across all areas of the business. I would say there's no area that we won't look at. We think that there's potential for improvements. Frazer has made some -- and his team have made some quite good improvements operationally so far and executing on the life of mine plan from last year. But we do see some other areas that we can continue to drive both cost reductions and productivity gains.

What do we want ultimately? We really want Detour Gold to be a must-have gold stop for investors. It's a large production profile. It's a long-life asset. It's in a stable jurisdiction. If we can tick a few other boxes for investors, we think that this should be the sort of stock that those gold investors should want to own.

Again, at the very bottom of the page, we're going to run this business as a business. I'll say it time and time again. We're not particularly worried about titles or trappings of the office or anything. It's very much about making sure that we get this business where it can generate a return for investors.

So going on to the next slide, I'm going to turn this over to our Chief Operating Officer, Frazer, and he can run through the operational sections of the presentation.

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Frazer W. Bourchier, Detour Gold Corporation - COO [3]

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Thank you very much, Mick, and good morning, everyone. First, I'm not really a script sort of a guy. I speak from a head of knowledge of the operations and from a heart of passion and sincerity as I watch our employees make some notable progress. However, I do have key message tracks I wish to share with our listeners this morning, and I'll do my best to hit those key points without merely regurgitating the bullets on each slide for those of you following on the webcast.

And second -- look, many of you know me as a prudent, methodical, process-driven rather carefully measured individual, conservative somewhat, not from a sandbag approach but rather from a caution appropriate for an exciting large asset that maybe was only 1 to 1.5 years into its operational maturity curve when I joined in 2018 rather than the 4 to 5 years one might have expected with the 2013 commissioning. So for this call, just pardon my somewhat muted enthusiasm and excitement as I speak to these results and our continued progress the last 12 months.

As you can see from the results, the company continues to make positive strides operationally and financially. First quarter gold production totaled nearly a 155,000 ounces, marking the sixth consecutive quarter above 150,000 ounces.

We sold nearly 158,000 ounces in the first quarter at an average realized gold price of $1,304 per ounce. Higher gold sales are partly attributable to reducing the gold in circuit and finished metal inventory.

Revenues totaled $206 million, reflecting the higher realized gold price for the quarter along with the higher gold sales. And the all-in sustaining cost, which includes all capital, corporate, exploration cost, that totaled $1,044 for the first quarter and the subset of that AISC, i.e., total cash cost was at $739 per ounce. So the company is in a strong financial position with USD 201 million in cash and cash equivalent position, an increase of just over $69 million from December 31, 2018.

We continue to progress on our safety initiatives towards our goal of zero harm to any person in our company and on our site. The 12-month rolling average for our total recordable injury frequency rate, which includes lost time and medical aid injuries, stands at 1.8 per 2,000 hours worked, employees and contractors both included.

And we need to further reduce this despite this being our seventh consecutive monthly declining rolling average for TRIFR. Therefore, we remain very diligent and focused, especially on potential critical occupational risks and the effective mitigation of these risks and have launched an additional initiative in that regard during this past quarter.

The company is pleased with the progress of its previously established key strategic priorities that are required to ensure execution of both its annual plan and the most recent 2018 published life of mine plan, which I will speak briefly to in a few more slides. As you may have noted, it is the company's best performing Q1 to date. The first quarter is always challenging, with extreme winter conditions, which impact both mining, maintenance and milling. As planned, the mill processed 5.2 million tonnes of ore, equivalent to an average throughput rate of nearly 58,000 tonnes per day. That's an increase of 14% from last winter Q1 2018.

Head grade averaged 1.00 grams per tonne, and gold recoveries improved to 92.2%. Federal recoveries resulted from the progress of completion of planned capital projects initiated in Q2 2018, which have also improved the safety environment, the plant's availability, the plant's operating time and the plant's stability.

Mining rates averaged 296,000 tonnes per day for the first quarter. This is our best performance to date during the winter season and an increase of 18% over Q1 2018.

Run-of-mine stockpiles, which are a natural reality of large-volume, high-strip open pit mines, remained relatively constant in Q1 at 5.5 million tonnes, which also served as a healthy buffer for blending ore and for ore feed contingency purposes. Our focus continues on improving all mobile fleet availabilities, including shovels as well as 6 plant availabilities through our condition-based maintenance approach. We are also improving operating practices, in particular drilling blast fragmentation, ramp and road rate conditions, mobile fleet management with associated truck cycle times and mine planning.

Our modus operandi, keep our heavily invested assets available. I call it, keeping the planes in the sky, ensure they are fully utilized and operating with a scheduled maintenance philosophy and move a large amount of smart ex-pit tonnes process quality ore offset our high proportion of fixed costs, thereby reducing our unit costs.

Further reduce our variable costs, increase the gold recovered, increase the cash margins, and hence our cash flow, with an effective, prudent, sustaining capital spend.

TCC for the quarter was 739 per ounce sold. Note that despite a portion of the cost for the planned April mill shutdown included in these Q1 costs, which added about USD 15,000 or CAD 0.60 per tonne mill for those that looked at the unit cost that we provide in Canadian dollars. The TCC also benefited from good production results with higher gold sales and a favorable exchange rate.

For your reference, I would also like to point out as per our various First Nations' impact benefit agreements reflected in our life of mine plan, these now somewhat higher First Nations' costs, which are time and production dependent, explain the main reason for the higher unit cost for site G&A cost this quarter compared to prior periods.

AISC of $1,044 per ounce sold mainly reflected a relatively lower level of capital spending in the first quarter, as capital spending is expected to accelerate for the remainder of the year and as per plan. With construction of the tailings facility Cell 2 and our ongoing planned mobile fleet component replacement work, which is weighted more to the second half of the year. However, the company is still projecting to be within its annual guidance of USD 155 million to USD 165 million for sustaining capital expenditure. This amount excludes the capital stripping of about $35 million to $40 million.

Sustaining capital expenditures for this quarter totaled $40 million, including $9 million for deferred stripping, and the remaining $31 million shown on the slide can be broken down as $13 million for mining, mainly planned maintenance for the fleet, $8 million for tails, $7 million for process plant and $4 million for site infrastructure, such as ditching and camp completion. This capital spending profile is short term in nature. Current guidance this year remains at USD 1,175 to USD 1,250 per ounce sold, and the longer-term total site costs are expected to drop to below $900 per ounce sold by 2022, as shown on Page 5 of our June 27, 2018, press release, which was the life of mine executive summary. I remind you that reducing our AISC and all the factors that, that entails through the execution of our life of mine plan centered around our key strategic priorities remains our most critical objective with the cooperation and support of working with all our stakeholders.

Moving on to the next slide on these key strategic priorities or as I've called them before the strategy buckets. We have the embedded -- I'm just highlighting the key ones. The embedded condition-based maintenance that will be all complete by Q4, but we have most of the team in place and are moving forward on those initiatives. We have established -- I should have added the word ed there, we're not about to, we have established a business improvement team focused for now on the drilling blast fragmentation I referred to earlier, haul truck cycle efficiencies and loading practices -- that's haul truck loading practices. And then contractor management and project management, 2 critical skills and areas which will address both schedule cost and variable cost I spoke to earlier. Automation and data analytics, this is everything from Tele-remote drills, which are operating as well as live, what we call, dashboards for our operators in the field to be able to interact and react quickly. We call that short interval control.

Processing plant projects, we're about 60% of the way completed of what we started earlier in Q2 of last year. TMA Cell 2 construction mostly on schedule. HR recruitment and retention strategy. I suppose if I had put these in order of importance, I put that one right to the top. It's extremely important for us as we finalize that strategy and embed that to ensure our leaders and operators, who are our most valuable asset, require -- this requires continuous focus, and then mine planning enhancements.

On these particular slides I've just shown, what I think are some of the key graphs that summarize a few important, what I would call operational drivers and outputs reflecting encouraging trends. Of course, we have a lot more key metrics that we measure, and Mick has some great ideas on other metrics we're going to start looking at to measure our effectiveness and how we're moving forward. But I shared these particular ones to show the mining rates. We've highlighted in one color all the Q1s. Those are our most difficult quarter because of the winter conditions I've talked about. I think that graph speaks for itself. To the right are the unit costs. I remind you, when you look at those unit costs, those are colors of the -- cost of the day. So of course, it doesn't account for inflation. So inflation has an impact trying to drive those costs up. They're always lower when you look at the left because the fleet was newer, the haul distances were shorter, the waste dumps were not as high. So a little bit higher in Q1. But again, generally speaking, on plan.

The mill throughput, again, we look at the left. Those Q1s tend to be our most difficult. I appreciate someone might look back at Q1 2017 and say, "Wow, you were higher back then." I would argue emphatically that, that was not a sustainable approach to operating the mill in a very heavy way. We're trying to embed a boring repeatable from a good point of view when I say boring. And so we're fairly pleased with that mill throughput, and we think there's more room that, that will move up. And again, the associated milling costs, a little bit higher than we might have expected in Q1, but that refers to what I shared earlier with a good portion of the shutdown costs that came in April just have to be reflected in our Q1 accounts.

So in summary, before handing over to our new Controller, Sheila, to share details of our quarterly and overall financial health, a very good quarter, on plan, 4 successive quarters that we are now pleased with. Objective remains to stabilize in the next 9 to 12 months. Plan to optimize after this over a few years, say, to 2022, which drives as the benchmark. And then post this, we can talk about maximize, which puts us best-in-class.

In essence, for now, we are still heavily reliant on our important leaders now under the direction of Mick McMullen, whom we all welcome. We implement, embed down needed systems and processes, and we continue to execute on the life of mine plan to gain increasing market confidence and delivery of the CAD 3.45 billion net asset valuation of the Detour Lake mine that was shared with you all last June.

And a final unusual note of thanks, if you'll briefly indulge, we've had an entire board change out in the last year, bar 1 member. 4 different CEOs from May of last year to May of this year. Of course, this is a natural disruption included with the proxy contest. However, we are excited about the future. We're looking forward to things being stabilized, and I personally would like to make a shout out to the team who do all the work for us. That includes the team at site, Dale Ekmark, the GM; David Londono, the Operations Manager and their entire strong team, with most of his leadership team having collective international experience that's quite extensive that helps us to both benchmark and understand best practice perspective.

I couple that with the rich heritage and strong experience of our pre-2018 leaders locally from Northern Ontario, who understand the context there very well and as well as strong support of the enablers here in the corporate office with many leaders, Ruben Wallin in Environment and Sustainability; Dan Schmelzer, IT; [Moro Brasadi], R&R, just to name a few.

So both to the new employees and the longer-term employees, we thank you for staying focused throughout this past year and doing the best you can in executing on the plan.

Sheila, over to you.

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Sheila Magallon, Detour Gold Corporation - Corporate Controller [4]

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Thank you, Frazer. Earnings from operations were $43.8 million, benefiting from a stronger gold price environment on a good operational result as mentioned earlier. Corporate G&A amounted $6.6 million, and exploration expenses totaled $1.5 million in Q1. The company recorded $3.9 million in interest expense and bank charges is realized a net loss of $0.1 million on its financial risk management program and recorded an unrealized net gain of $7.3 million on its derivative position as at March 31, 2019.

The company recognized an income and mining deferred tax expense of $1.5 million in Q1. Our expenses are computed in Canadian dollars, resulting in foreign exchange gains and losses when our tax balances are translated into the U.S. dollar for financial reporting purposes. The strengthening of the Canadian dollar relative to the U.S. from the year-end resulted in a deferred tax recovery for the period, offset by a larger deferred income tax expense when our tax depreciation and accounting depreciation are compared.

The volatility of the exchange rate between the Canadian dollar and the U.S. dollar can result in significant adjustment to our deferred tax expense in any given reporting period. Net earnings for the quarter were $38.9 million or $0.22 per share, and adjusted net earnings were $18.3 million or $0.10 per share. As mentioned earlier, we are in a strong financial position with $201 million in cash and cash equivalent and $220 million undrawn and available from our bank debt facility. Our net debt, 45 -- $49 million was a significant reduction from last quarter.

At the end of the quarter, the company's hedging position was as follows: 204,000 gold ounces hedged at an average floor price of $1,250 per ounce and a ceiling of 425 -- $1,425 per ounce. $325 million of zero-cost foreign exchange collars to the hedged Canadian dollar cost where we can sell U.S. dollar at the rate of $1.28 and participate up to an average of $1.35. This represents a hedge coverage ratio of approximately 70% of our cost for the remainder of the year.

In April, the company added $80 million of zero cash collars for the first half of 2020 with a floor price of $1.30 and a ceiling price costs $1.37. 25 million liters of diesel fuel contracts at an average rate of CAD 0.85 or USD 0.53 per liter, which settled on a net basis. These contracts represent approximately 40% of the company's diesel fuel requirement for the remainder of the year.

I will now pass the call to Frazer to talk about our guidance.

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Frazer W. Bourchier, Detour Gold Corporation - COO [5]

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Thank you, Sheila. But the main takeaway from the slide, our 2019 guidance is unchanged. Guidance, as we focus again on stabilizing and boring, in a good way, which means repeatability and consistency, no borrowings, no major unexpected breakdowns, while possible with a single-asset company, it's a progressively diminishing risk in our opinion. As long as we continue to motivate, support and engage our key leaders, I am confident we will not miss guidance this year.

We will move back over 300,000 tonnes per day mining rates and anticipate further improvements at the plants to meet our guidance of 21.5 million to 22 million tonnes processed through the plant this year. Although recoveries did improve to over 92% in Q1, we do expect that slightly lower recoveries during the summer months but still anticipate to be within the annual guidance of 90.5% to 91.5%.

Based on our good Q1 results and operational progress, we remain committed to our gold production guidance of 570,000 to 605,000 ounces gold. And on the exploration side, we completed our winter drilling program of 75,000 meters in 26 holes, testing several targets around Zone 20 -- sorry, Zone 58 North. This program was successful in delineating gold mineralization 150 meters to the west of the current mineral resource.

So for now I pass the call back to you, Mick, for your closing comments.

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Michael James W. McMullen, Detour Gold Corporation - President, CEO & Director [6]

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Thanks, Frazier, and thanks, Sheila, as well. So again, just a general comment, we've got a lot of new team members here. Sheila has had to step in, and she's a longer-term employee, but in here 1 month exactly, I think. I've been here 3 days. So we're still getting our arms around the business, I guess you could say. But it is satisfying to see the improvements that are being made both in the operations and safety. I can say that safety is a big focus of mine and the concept of safe production because actually in my experience improving safety goes hand-in-hand with improving operations. We still think that there's a lot to do. We're going to try to continue our efforts towards successful execution of the life of mine plan. We can see already a lot of opportunities ahead of us, both here in corporate and with our leadership at site. And we're going to gradually work towards incremental improvements through the business on both cost and production, which should hopefully get our AISC down.

Coming back to the concept of the business as a business, it's all about margins and making money for our shareholders at the end of the day, operating responsibly within the communities we operate in, treating people fairly. But at the end of the day, our shareholders have invested a lot a large amount of money in this company and we need to generate a return.

So with that, I'm going to open up the call for questions. And if possible, each caller could limit their questions to 2 or maybe 3 if we've got time. Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question is from Cosmos Chiu with CIBC.

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Cosmos Chiu, CIBC Capital Markets, Research Division - Executive Director of Institutional Equity Research & Equity Research Analyst [2]

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Welcome, Mike. Hopefully, it's been a good 3 days.

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Michael James W. McMullen, Detour Gold Corporation - President, CEO & Director [3]

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It's been a very busy 3 days, you could say.

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Cosmos Chiu, CIBC Capital Markets, Research Division - Executive Director of Institutional Equity Research & Equity Research Analyst [4]

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Busy is good. So maybe if I can -- my first question is on grade. When you gave out guidance for 2019, you had talked about the grade being 0.9 to 1 gram per tonne. Clearly, in Q1, it was at the higher end, 1 gram per tonne. Once again, can you remind us the higher grades are coming from the Campbell and also the Calcite Zones, I believe? And then in the past, you've also talked about Q2 being lower grade, I just want to get a bit of a more clarity in terms of how the grades are going to change in the subsequent quarters?

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Michael James W. McMullen, Detour Gold Corporation - President, CEO & Director [5]

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Sure. I'm going to hand that one over to Frazer for you.

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Frazer W. Bourchier, Detour Gold Corporation - COO [6]

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Yes. Cosmos, yes, good question. I'm not going to get into details of where we're mining. By the way, we finished Campbell pit that site a while ago. Look, the grade fluctuates somewhat. When we see relatively lower, that's a relative term. We're talking maybe 0.5 grams per tonne here. We're talking one part per million in gold. So it fluctuates up and down, but we still maintain our gold grade guidance. We've been doing a lot of work on our resource block model to better understand the positive gold reconciliation that we have been sharing with you over the last few quarters. So while there's continued potential upside there, we just want to do some more work on that and better predicting. Grades don't change, it will fluctuate minor up and down, little bit down next quarter, little bit up the following quarter, little bit down the following. Take away, our guidance stays the same, between 0.9 to 1, and we will work on continuing to upgrade our resource block model.

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Cosmos Chiu, CIBC Capital Markets, Research Division - Executive Director of Institutional Equity Research & Equity Research Analyst [7]

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Great. And...

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Michael James W. McMullen, Detour Gold Corporation - President, CEO & Director [8]

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Sorry, and as a general comment outside on that, there is some relatively recent work that's going on with the grade control and in pit RC drilling, which is very much a work in progress at the moment, but it's definitely moving in the right direction, and so -- and our people focus on tonnes mined, but it's actually about quality tonnes mined as well.

So I think we're going to try to move a bit more towards focus on quality tonnes, which may, if things go the right way, have a positive impact on grade, but it's a bit too early to tell at the moment.

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Cosmos Chiu, CIBC Capital Markets, Research Division - Executive Director of Institutional Equity Research & Equity Research Analyst [9]

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For sure. And then my other question is, looking at your costs -- unit cost per tonne, certainly, Q1 was a bit higher than the previous quarter on mining costs, milling costs, also G&A. I just want to confirm that's a function of operating and what was a pretty brutal Canadian winter. But at the same time, if I look at your mine plan that you put out in June 2018, for 2019 you're pointing to -- when I compare 2019 unit cost per that mine plan compared to Q1 2019 you're looking for a 7% improvement in mining cost, almost 10% improvement in milling cost and 25% improvement in G&A. I'm just wanting to make sure you're still on track. And now that the Canadian winter is over maybe in Cochrane, if we're going to see a significant improvement in Q2 or is it going to be more kind of gradual quarter-over-quarter in terms of getting to those numbers?

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Frazer W. Bourchier, Detour Gold Corporation - COO [10]

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Yes. So let me answer it this way. At the end of the day, we're on track to that life of mine plan. When we share, for example, mining $2.82 per tonne with the number for the full year. This year, there are two things you should be aware of. The first is, you are correct, Q1 always our toughest quarter, we don't quite move as many tonnes. So as a result, you can't quite offset your proportion of fixed cost as much, so it's always going to be higher in Q1.

The second thing which I think I have shared with you, Cosmos, and I share with everyone, of course, what matters is the cash margin and the cash flow that comes out. We use a constant dollar model. So when we show you those unit costs going out, that was in 2018, you have inflation that you always have to consider, but as long as the cash margins stays the same, we use the flat dollar gold price, the argument is net -- NAV doesn't change. So if I took that $2.82 and added 5%, that would come to $2.96 per tonne mined, as an example. We're $3.05 for Q1, we're on track.

On the processing side, I know that said $9.48 per tonne. Again, I add inflation, 5%, that's $9.95. This was unique because we had some of our cost for the shutdown and the process plant coming into Q1 that added $0.60 a tonne. I take that $10.60. Take that $0.60 off, I'm down at $10, right around $9.95, again on track.

The last thing on the G&A, and I want to clarify this, there might be some confusion, it is in the footnote in the life of mine plan. If I take that $3.19 per tonne mill for G&A in that 2018 long for this 2019 year, inflate it 5%, $3.35. You might say, "Wow, that's $4.11. That's a lot different from $3.35." That is because we do not include on that particular line that you're looking at for G&A unit cost the First Nations' cost. We do when we're reporting these in these quarterly. It's shown below the line in the life of mine plan.

Here we put it above the line when representing our metrics as you would have seen on the Detour Lake operating stats on our press release. So hopefully that clarifies for you. Take away, we're still confident -- generally confident we're on track with our costs and the cash margin.

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Cosmos Chiu, CIBC Capital Markets, Research Division - Executive Director of Institutional Equity Research & Equity Research Analyst [11]

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Great. And Mick, you mentioned -- I can slip in a third question, maybe, so I'll try it here. Good thing that you mentioned First Nations. I guess there's has been some recent -- not so recent, but there's been some changes at Moose Cree, in terms of the Moose Cree leadership. I'm just wondering if you would like to make a comment if there's any comment to be make -- made in terms of positive or negative outcome or read-throughs from that leadership change.

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Michael James W. McMullen, Detour Gold Corporation - President, CEO & Director [12]

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I'll take this one and it's a pretty simple answer in the end. It's no comment at this stage. We'll probably be able to provide some commentary in the next call, I would suggest.

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Operator [13]

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Our next question is from Mike Parkin with National Bank.

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Michael Parkin, National Bank Financial, Inc., Research Division - Mining Analyst [14]

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We've heard -- you answered most of my questions just kind of following up on Cosmos' question on grade. What was the budget for Q1 relative to what you got? Like, you've been benefiting a bit from positive grade reconciliation, which is a nice thing to see. Just wondering if you're still seeing that a little bit in Q1?

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Michael James W. McMullen, Detour Gold Corporation - President, CEO & Director [15]

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Look, we don't give out sort of budget quarterly numbers and stuff like that, but it was within the range of where we should have been.

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Frazer W. Bourchier, Detour Gold Corporation - COO [16]

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Yes. Our guidance was 0.9 to 1.0. That's the guidance we gave, yes. And we're still pretty confident on that. And as Mick had mentioned, I mentioned earlier, it's work in progress on some resource block model, working grade control drilling.

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Michael James W. McMullen, Detour Gold Corporation - President, CEO & Director [17]

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I think one quarter is probably a bit early to call a big trend at this stage. So just give us another quarter or 2.

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Operator [18]

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Our next question is from Josh Wolfson with Desjardins.

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Joshua Mark Wolfson, Desjardins Securities Inc., Research Division - Analyst [19]

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Taking a look at the mining rates relative to the full year average I guess expectations for about 315,000 tonnes a day, first quarter was very good with respect to what I guess you typically would expect seasonally, but it's a bit lighter than the full year numbers. Any sort of thoughts on how the full year average is going to be achieved or should we see a big ramp up in the second and third quarter? Maybe that's too granular, but just a more insight as to how the guidance can be achieved there?

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Frazer W. Bourchier, Detour Gold Corporation - COO [20]

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Yes. I'm going to sound like a broken record on coming back to guidance and guidance being maintained. What I will say, Josh, are two things. One is, that quarter we just had, Q1, we would expect that to be our lowest rate quarter. We have come out of the winter season. We've done a lot of work on our roads and ramp. But the other thing I do want to speak to, and Mick has made reference to this too, it's not about moving tonnes necessarily. Of course, in a high-volume, low-grade operation, volume is important, but it's moving smart tonnes. So if, and I say that I-F, we ever were to move less, it's because we don't believe we need to move that much. We're not going to move tonnes for the sake of moving tonnes. If we continue to do work on the resource block model and access more ore, then we'll cut back. But for now the guidance stays the same. We're confident in both improving mining rates, sticking to guidance and getting those tonnes through the -- ore tonnes, quality ore tonnes through the mill to meet our gold guidance.

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Joshua Mark Wolfson, Desjardins Securities Inc., Research Division - Analyst [21]

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Okay. And then following up some of the comments on unit cost and I guess how those change over time relative to the 2018 life of mine plan, you mentioned numbers roughly of incorporating about 5% inflation relative to that plan for 2019 and I'm assuming inflation will continue into the future. I guess I had two questions related to that. First one would be, what are the actual inflation rates you're seeing on site maybe in terms of what would be some key drivers? Whether that's First Nation's related cost or G&A and labor. And then second to that, looking at the life of mine plan, which I'm assuming ourselves and everybody else is using, should we be incorporating that kind of inflation going forward such that maybe the $900 AISC targets aren't actually the real numbers because we should be factoring in inflation every year going into the future? Is that reasonable to expect as well?

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Frazer W. Bourchier, Detour Gold Corporation - COO [22]

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I'm going to let Mick answer part of this. But the only thing I'll say, Josh, is what we do is not unusual from any other mining company. The focus shouldn't be per se on just one metric, as in the unit cost, it should be on the cash that's generated. Most people use constant dollar models. You put in flat gold price, you put in flat costs, inflated, of course, in terms of production variances but not for inflation. And in theory the idea is, the margin stays the same because if you have inflation that's on the gold price off that bat, doesn't change the cash margin. You get the same discounted NAV.

So I would argue depending on how you do your own valuation, constant dollar model is pretty consistent. So I understand the focus on the unit cost, but any costs there's always going to be an inflation factor.

As to the first part of your question, we don't find anything unusual with the inflation right now. We're managing our fuel prices as you saw through hedging. There is obviously always inflationary pressures that exist that we all experience outside the industry and inside. But right now it's nothing alarming for us.

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Michael James W. McMullen, Detour Gold Corporation - President, CEO & Director [23]

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Yes. And I'll just comment quickly that, that life of mine plan, it is a real not a nominal model. So depending on whether you run your models in real or nominal, you'll either have to adjust our costs, but then you'll adjust your real or nominal discount rate for your WACC.

And look, I think there's some opportunities for costs to be reduced across the business. And so I think it's a bit early for people to jump to the assumption that you need to just put -- just a standard 5% inflation rate into the model just yet because I think we'll be able to shave some money out of the business as well. But just -- again, I'm on day 3, Sheila is on day 33 or something like that. Give us a little bit of time.

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Joshua Mark Wolfson, Desjardins Securities Inc., Research Division - Analyst [24]

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Okay. And if I can just sneak in also one more question taking I guess Cosmos' cue, on the weather front I did see some commentary. You guys had mentioned there was no impact on site from -- I guess no severe impact from the higher water levels and rainfall. Has that -- if affected I guess operations in any way in terms of where you can mine in a pit if there is higher water present there or is there anything we should be aware of in terms of how second quarter is progressing?

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Frazer W. Bourchier, Detour Gold Corporation - COO [25]

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Good question. Look, the team have done a great job, whether it's around roadway, ramp conditions and ditches. Ditches around our waste dumps or ditches along the side of the ramps to collect the water. So the short answer is no. We've managed that quite well in addition to our water management pond and ability to collect water. So we don't have the issues that have happened in the recent news you would've seen in the industry in Northwestern Ontario or in various cities. So we've been quite fortunate.

Of course, it had a little bit of impact in terms of truck speed. But in -- for the most intense purposes, be it a discharge issue or productivity issue, it doesn't change our guidance for the year.

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Joshua Mark Wolfson, Desjardins Securities Inc., Research Division - Analyst [26]

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Great. Thank you very much, and looking forward to many more boring quarters.

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Michael James W. McMullen, Detour Gold Corporation - President, CEO & Director [27]

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I think this company's had a plenty of excitement over its history, so we'll try and deliver boring.

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Operator [28]

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Our next question is from John Tumazos with John Tumazos Very Independent Research.

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John Charles Tumazos, John Tumazos Very Independent Research, LLC - President and CEO [29]

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Mick, congratulations, and hopefully we don't have 4 guys in a year again and it's all stable. The results are very good. Do you think that part of this is just that the winter was mild? Where I live, I didn't have to use my snow blower on the jersey shore this past winter, but it's milder than Cochrane.

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Michael James W. McMullen, Detour Gold Corporation - President, CEO & Director [30]

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Yes -- sorry, I don't think this winter was very mild at all. It was a pretty harsh winter, I believe, up there anyway.

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John Charles Tumazos, John Tumazos Very Independent Research, LLC - President and CEO [31]

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Second, forgive me for being a little bit inimitable. Do you think that Frazer is doing a great job and the battle is sort of won and all you have to do is stay out of the way because they're doing a good job? Or do you think that there's a lot more work to do to get all the squeal out of the pig?

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Michael James W. McMullen, Detour Gold Corporation - President, CEO & Director [32]

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Look, I think if anybody that knows me on the call I think they would know that it's actually not in my nature to be not involved. So I'm not a hands-off CEO. Let's be very clear with that. I think Frazer and Dale and the team have actually done some pretty good work. As you can see in the results, this has been a pretty good quarter. And we're going to be spending a lot of time up at site. I think as the CEO, it's impossible for me to actually really understand the business without being up at site a fair bit. So I want to work with the team to try and see if there's more stuff we can squeeze out of the business, I guess.

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John Charles Tumazos, John Tumazos Very Independent Research, LLC - President and CEO [33]

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Thank you and congratulations on 3 days. It's looking good.

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Michael James W. McMullen, Detour Gold Corporation - President, CEO & Director [34]

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Thanks very much. I hope that every quarterly call is just as pleasant.

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Operator [35]

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Our next question is from Kerry Smith with Haywood Securities.

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Kerry Smith, Haywood Securities Inc., Research Division - VP & Senior Mining Analyst [36]

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Frazer, I think the last time we had a call you were still in the process of hiring a couple of key people at the site. Have all of those people now been put in place and everybody has stayed through the whole transition and you've kind of got the team as you wanted?

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Frazer W. Bourchier, Detour Gold Corporation - COO [37]

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Generally speak -- I mean there's never an ever permanent, the only thing guaranteed in life are change. But I think for the most part we have at site most of the team where we're doing some rebuilding here at the senior levels in the finance section, as you've heard with Sheila recently in a search for the CFO. But I would say for the most part yes.

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Kerry Smith, Haywood Securities Inc., Research Division - VP & Senior Mining Analyst [38]

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So have there been something that you had that have left in the, like, say, the last 3 months. Has there been much turnover there?

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Frazer W. Bourchier, Detour Gold Corporation - COO [39]

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No. No, there hasn't been any turnover. It's been bidding people farewell and all the best here out of corporate office as we downsized a little bit. But generally speaking, no, we haven't had anyone leave. Not that anyone's told me about anyway.

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Kerry Smith, Haywood Securities Inc., Research Division - VP & Senior Mining Analyst [40]

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Okay, okay. Great. And just on the block bottle reconciliation, how has it been for the last 4 quarters there?

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Frazer W. Bourchier, Detour Gold Corporation - COO [41]

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It's been consistent, good, positive. As I said, going back 3, 4 years. It's 3% to 4% positive. Some people sometimes refer to this as a nuggety ore body, not quite as consistent as you might think. But I would say that's all a matter of scale. Things don't look nuggety when a massive -- a loader picks some stuff up and dumps it in the 300-tonne truck. But there is some variability along there, but it's generally speaking positive reconciliation. We do have some areas where it goes the other way. So sometimes we get more tonnes in lower grade and other times we get higher grade and less tonnes.

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Kerry Smith, Haywood Securities Inc., Research Division - VP & Senior Mining Analyst [42]

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Okay. So the reconciliation hasn't been any different, let's say, in this quarter, we just come through than it might have been the last, say, 4 quarters in 2018 has been pretty typical. And I think it was always a little bit more tonnes and a little bit lower grade than what the model predicted, but net-net 2% or 3% more ounces, is that kind of how it's still running there?

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Frazer W. Bourchier, Detour Gold Corporation - COO [43]

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I mean it is what Mother Nature put in the ground. But you're right, for us it's about being able to predict that reconciliation and forecast it accurately. So it has gone to our benefit in the past, we want to get better at predicting that. That's what the grade control and resource model upgrade is all about.

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Operator [44]

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(Operator Instructions) Our next question is from Carey MacRury with Canaccord Genuity.

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Carey MacRury, Canaccord Genuity Limited, Research Division - Analyst of Metals and Mining [45]

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Just had a question on the gold recovery, 92.2% looked like record level. Just wondering if there was anything specific about the quarter. Is that the result of some implementation in the plant or is that more of a onetime event? I see that's above the guidance range for recovery as they have for the year.

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Frazer W. Bourchier, Detour Gold Corporation - COO [46]

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Yes. Carey, I would -- look, I would say this, it's somewhat complicated in the plants, like a fifth order differential equation here. I mean there are very -- a number of different variables that impact recovery. I would say the general view is, well, it's always better in the winter months when it's colder. A lot of the work we're doing in the process plant, getting it more stable, running it more evenly, some with the ore feed we put in has led to that higher number than some might have expected for Q1. And we are happy with the progress on those mill capital projects.

That being said, we go back to what I said before, we're going to maintain guidance. We're not here to say it's certainly going to be 92% this year. Of course, in the life of mine plan, you will see it grow to that and above. But Q1 was both expected and a little bit above the park because of those factors that are hard to exactly predict to the decimal place with what we're doing in the plant and the impact that has on recovery.

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Carey MacRury, Canaccord Genuity Limited, Research Division - Analyst of Metals and Mining [47]

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And then maybe another question, probably too early to ask, but given the change in the board and with Mick you on board now, obviously the focus is on 2018 life of mine plan, but is there any discussion on is that the right plan? Is there any plans to create a new plan optimizing it in a different way?

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Michael James W. McMullen, Detour Gold Corporation - President, CEO & Director [48]

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I'd say it's a bit early to tell. That's the plan we're working towards at the moment, and the team's delivering on that plan. I would say, over the next couple of quarters, we'll look for every opportunity just because that's the plan today, that doesn't mean that we see opportunities to improve on the plan that we won't grab them. So that's the plan as far as the market is concerned. That's the plan we work to internally. That's the plan the guys are delivering on.

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Operator [49]

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This concludes the question-and-answer session. I would like to turn the conference back over to Mick McMullen for any closing remarks.

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Michael James W. McMullen, Detour Gold Corporation - President, CEO & Director [50]

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Well, look, thanks, everyone, for your time for listening and for your good questions. As you would know, I'm out talking to lots of shareholders and lots of analysts, so I'll look forward to a few more boring quarters as we just continually to grind improvements out of the business. Thanks, everyone.

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Operator [51]

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This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.