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Edited Transcript of DGC.TO earnings conference call or presentation 15-Nov-19 3:00pm GMT

Q3 2019 Detour Gold Corp Earnings Call

TORONTO Dec 4, 2019 (Thomson StreetEvents) -- Edited Transcript of Detour Gold Corp earnings conference call or presentation Friday, November 15, 2019 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Jaco Crouse

Detour Gold Corporation - CFO

* Michael James W. McMullen

Detour Gold Corporation - President, CEO & Director

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Conference Call Participants

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* Carey MacRury

Canaccord Genuity Corp., Research Division - Analyst of Metals and Mining

* Daniel McConvey

Rossport Investments LLC - Founder & Portfolio Manager

* Don M. Blyth

Paradigm Capital Inc., Research Division - Analyst of Gold

* 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 Third Quarter 2019 Conference Call and Webcast. (Operator Instructions) The conference is being recorded. (Operator Instructions)

I would now like to turn the conference over to Mick McMullen, President and CEO of Detour Gold. Please go ahead.

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

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Thank you, and thanks, everyone, for joining us here this morning. This is our third quarter 2019 results conference call. And as the operator said, we'll -- I'll run through the presentation, and then we can have a Q&A session at the end.

If we look at Slide 2 of our deck, as you know, the usual cautionary statements on forward-looking information, I will leave that to people to read at your leisure. And similarly, the notes to investors about non-IFRS measures I'll also leave for people to read at your leisure. In terms of our participants today, it's myself, the President and CEO of the company; Jaco Crouse, our CFO, and we're ably assisted by Sandy, our Head of Investor Relations here.

Coming on to the next slide, Slide 5, we talk about safety. Safety is a reflection of how the business is tracking. It's a reflection of how our workforce is feeling. It's a good leading indicator. Q3 this year was our best TRIFR on record at 1.17 and year-on-year that represents a 48% reduction. So the graph there sort of showing a rolling reportable rate. The actual quarterly number was 1.17. So we view safety as being critical to a productive workplace. It's a good leading indicator of employee culture.

The other leading indicator we tend to look at is attrition or employee turnover, and that's down from -- it's down about 45% year-on-year. So we were running about 20% per annum last year, and we're currently sitting at about 11%. So again, that's a good leading indicator we're heading in the right direction. On safety, for a big open pit, highly productive environment in North America. We still think there's a bit of work to do. But I think it's a testament to the workforce up at site that we've had such a big reduction year-on-year.

Going to Slide 6 looking at the highlights. Gold production was just under 138,000 ounces and, obviously, sequentially or quarter-on-quarter that was down from the previous quarter. And when we did our Q2 earnings call and our Denver Gold presentation, we were very clear to say to people that we have much better granularity now in terms of what's going to happen in the operations. And we knew that we were going to mine through a lower grade portion of the pit. And we also knew that Q4 would be very strong, and that's exactly what we've seen. So we shouldn't -- people shouldn't be surprised by that. It was part of the plan. We did see about a 5,000 ounce inventory build right at the end of the quarter, which actually [got forward] right at the start of Q4.

Gold price has obviously gone up. So average realized gold price was USD 1,436. And I'll note that everywhere we talk about dollars in this presentation is in U.S. dollars, unless we specifically note it's in Canadian. Cash costs, obviously, were very strong. So $730 an ounce and all-in sustaining costs were $11.98. And I guess that was a very good result in light of the reduction in ounces produced and also the fact that Q3 is our main construction quarter just given the weather appetite. And so that was a very strong result for ostensibly what will be our weakest quarter during the year.

You can see the year-to-date numbers. I will talk about where we are year-to-date on gold production as of today on the next slide. But in general, it was a pretty strong quarter, I think. If we look at margin, people often sort of forget that they're in business in mining to actually produce some money. And they focus very much on how many ounces they're producing and also great facts about how many tonnes they are mining and stuff. But at the end of the day, we're going to be in business to make a margin.

And if you look at that slide there, we've just had -- Q3 is the highest margin on a cash cost basis that the company has ever had. You can see the cumulative cash flow generation on that slide is -- we've ramped up cash flow generation quite a bit during the course of the year, over the last 12 to 15 months. And again, we've always said that we will run this business in order to run it as a business and to make cash flow. So we're very focused on margin. We're very focused on cost. And so notwithstanding the lower ounces we had in Q3, we actually had a very good result here.

So coming on to Slide 8, I guess this is one of the ones that people are going to ask questions about going forward, I suppose, is given the strong results that we're seeing so far in Q4, given the plan that we sort of -- that we knew we were going to deliver on during Q3, that's given us the confidence to change our guidance range where we sit 6, 7 weeks out from the end of the year. So the month of October was very strong. We actually poured 60,000 ounces, including that 5,000 ounce inventory build. And the last gold pour -- the last week the gold pour at the end of that month was the biggest gold pour in the history of the company at 17,500 ounces.

As we sit here today, as of end of yesterday, we produced about 522,000 ounces. And because of the high grades that we're seeing into the pit, 1-plus grams, we're actually pouring a little over 2,000 ounces a day at the moment. So that's given us confidence to bring up the bottom end of our production guidance range from 570,000 to 590,000 ounces. We've left the top end of the range the same. We still believe that we will come in somewhere closer to that top end of the range. We've also got the confidence now to reduce our all-in sustaining costs and cash costs range. So on the cash costs, we've brought that down by $40 an ounce. And on the all-in sustaining costs, we've brought that down by $70 an ounce. And again, we actually expect to come in towards the better end of those ranges as well. So I think we like to keep the market as informed as we possibly can. We have much better granularity, as I said earlier. We feel confident that we can give this improved guidance to the marketplace.

So going on to the operational results, how did we arrive at where we arrived at? So obviously, grade was lower, but mill throughput was higher. We've got 5.6 million tonnes of ore through the mill, despite actually having a sizable shutdown during the quarter. The grade, as we -- as [I] planned, we literally got into the better grade material in the last couple of weeks of September. Of course, you didn't have enough days in the quarter left to really see the full benefit of that, which is why it's turning up now.

Recovery was quite good. It's up year-on-year. Again, for those people who follow the company closely, we typically see a lower recovery during the warmer months related to water temperature. But actually, we haven't really seen that big drop off in recovery during the warmer months. So that's been a very good result, partially due to the few projects -- capital projects in the mill, partially due to better operating practices and partially due to this blasting -- this fragmentation work that's underway, which gives us a more uniform feed into the crushers and, therefore, the mill. And so our grind size is more constant, which is better for the mill.

The mining rates were 286,000 tonnes per day. Quite frankly, I'd like to see us mine less. We continue to mine more than what we need. We're taking a very measured approach in terms of backing off that mining rate. If you recall, we parked up a shovel in July. We're seeing very strong block model reconciliation. So again, we don't need to move as many tonnes. We moved 26 million tonnes during the quarter. Strip ratio is 4.1:1. And again, we're probably mining a bit more waste than what we need at the moment, keeping fleet occupied. And we ended the quarter with just under 5 million tonnes on our ROM stockpile. So we're not short of haul. And again, I would like to realize that value that's tied up in that stockpile because there's circa 100,000 ounces sitting in there that we paid most of the cost for, and we're not getting the revenue out.

So reconciliation year-to-date we're up about 21% on ounces relative to what the reserve is telling us. That's all through extra tonnes. You will note that the grade is sort of up and down plus or minus 3%, which is within the realms of accuracy, quite frankly, but [loss] of extra tonnes. And what we've seen is that we are seeing a density effect in the resource where there was a flat density used for the resource calculation. It's probably a bit on the low side. We're doing quite a bit more work on that. We've also picked up a fair bit of ore that is slightly lower grade, but still well above cut-off grade. So it's also [worth taking] .

Really the key going forward is to update our resource model. And we've got a 120,000 meter core resampling program of historical core underway. We've brought a third reverse circulation rig in, and we're pushing hard to update that resource because that's the single biggest thing we can do in terms of really amending the mine plan next is understanding what that resource is. It's a great result to get an extra 20% ounces. It just makes short-term planning a little bit more difficult because we do a plan and then we actually get a lot more tonnes out. So as I said, waste stripping has been accelerated in 2019. We do want to back that off, and we get to see the effect of that over the next few years.

So coming on to Slide 11. We've talked from day 1 in my tenure about increasing free cash flow. When I spoke to investors and sort of said, what are the issues you have with the company, there was a bit of a delivery issue in terms of lack of delivery in the past. So I think we're ticking that box. But also the NAV was quite back-end loaded. And so it's all about delivering free cash flow for the owners of the business.

So this slide incorporates a few previous slides that we put forward about what are we actually doing on that. It's a little busy, but I'll spend a bit of time on it. So if you look at the first slide, we've said we're going to optimize the life of mine plan, prioritize the cash flow rather than ounces, and reduce our waste stripping by 24% over the next 3 years. And so the next slide, we'll sort of talk to that. Similarly, on the bottlenecks, we've had a pretty good look at the operation to see how do we actually get more ounces out earlier, and increasing the mill throughput is a pretty simple thing on a relative basis.

Contract management. It's probably fair to say that our commercial contracts were not [at commercial from our estate] . So we are in the process of renegotiating our truck maintenance contract, the MARC. That looks like it will save us USD 25 million between now and 2022. The explosives contracts are being renegotiated, and there'll be a new flow-through supplier with a significant First Nations component in that contract for the first time. That gives us about USD 3 million sales. The commercial team is also renegotiated for all their mill consumables, and we expect to save about USD 4 million of that per annum as we go forward.

But on the productivity side, we're parking unused or underutilized equipment. So we parked the shovel up. We will probably park another one up next year, I think. [I am pleased to have a clear scope of] work for our contractors. Again, it's probably fair to say that we haven't been great at contract management in the past. We've seen some good results from that. We're starting to benchmark our truck and shovel availability and utilization and our truck dispatch system that we're working on.

So in addition to that, if you look at all of that, that ends up with about USD 35 million of savings between now and 2022. On top of that, we previously announced that we've saved around about USD 4 million per annum on corporate costs since I started. So overall, I think, we're doing a good job, and the team is doing a good job in actually looking at what we do, seeing if there's cheaper ways to do it, smarter ways to do it and try to get our commercial relationships back onto a more normal footing, I guess.

So the next slide is Slide 12. We rolled this out at the Denver Gold presentation. I'm not so sure that everyone [is] fully [knows the process] so we're going to labor the point here a little bit. Because of the positive reserve reconciliation and the mine plan that was done last year was based on undiscounted cash flows, we're looking at discounted cash flows as the way to do our plan because, effectively, that's what the market uses to value us. We can still fill the mill. And in fact, we can fill the mill at a higher throughput rate and reduce about 100 million tonnes of cumulative waste between now and 2022.

And if you look at our costs, let's say, [let's go] CAD 3.20, CAD 3.30 a tonne, you're looking at the best part of $330 million worth of savings or mining costs that are deferred with the same production profile. So coming back to the commentary from shareholders and analysts that we had no or limited free cash flow in the near term, I think we can definitively answer that, that is not the case anymore. Q3 in itself, I think, answers that. Q4 looks pretty good as well. But we're now giving 3 years' worth of, sort of, I guess forecasting what that waste movement is going to look like. We obviously have done the exercise for the whole mine. We had the confidence to be able to do this without getting ourselves [waste down] somewhere in the future years.

So the next slide, 13, getting more from our fixed assets. So again, we've put this graph out before. We've updated it a little bit. So again, it's a little busy, but those vertical lines are our daily mill throughput. We've got the planned shutdowns on there. So you can see when we took the plant down. The thick red line is our current daily permit limit. So we have a 24-hour permit limit of 75,000 tonnes a day. And you can see, as you go from left to right in that and if you went back even further to the left in time, it was a lower number as well. On a pretty regular basis, this mill is hitting [the] 75,000 tonnes a day, and there's nothing more frustrating to an operator than knowing your fixed assets will do more, but you have to slow them down because of the permit limit. So we've been doing the work to look at what we should increase that to and the work to model that.

We are going to apply -- increase that further to 90,000 tonnes a day. And this mill will probably do in the order of 80,000, 85,000 tonnes a day with 0 capital projects over and above what the current plan is. There is a bit of work underway to look at is there a very low CapEx option to increase, if that work is not completed. But we figure 90,000 tonnes a day gives us a little bit of headroom. So in our minds, we think that's, again, not to sort of [praise] the permitting process. But 2021 is probably somewhere around about where we think that might be an option for us to start ramping that mill through product. Unfortunately, between now and then, we just have to operate as best we can to get as many days at 75,000 tonnes a day.

Going to the next slide, Slide 14. So spending what we need to spend. We're revising our guidance down a little bit on the CapEx. And that's a combination of deferring CapEx, but also not spending stuff if we don't need to spend it. TMA spend will come into the bottom end of the guidance range. I think in the past, there's been a view that once something got in the budget then you spend it. I think the way we look at the businesses is [we're in] corporate and the site working closely together to look at do we actually need this in order to deliver this mine plan. The other advantage of obviously having a smaller peak in the earthmoving schedule is that, obviously, you don't need as much fleet. We are spreading that earthmoving schedule out over a longer period of time. You don't have the peaks and troughs, which means that you don't need to buy as much fleet. You can actually move the dirt in a more uniformed manner, which allows you to take out of the capital program some of [these piece of the] fleet [purchases] .

If I go to the next slide, getting more from our mobile assets. So this is an area where I'd say we're probably at the start of our journey. Mining costs are our largest cost bucket. Obviously, we've gone after the MARC contract, the explosives contract. There's a couple other contracts. Tires are the other area where we've actually renegotiated the tire supply and management contract. And so the biggest opportunity is in improving our utilization of the fleet. You can see from the graph here, so we put up sort of loading time and queuing time or waiting time for the trucks at the shovel. We've made some improvements. We are [still] fast and best-in-class.

If you look at best-in-class, the queue time would be less than half of ours. So what does that mean? The less minutes of that truck is sitting there idling and waiting to get loaded, the cheaper your mining unit rates are going to get. And we -- through our benchmarking work, when we've looked at people who were really good and why they're much better than us, this is a key factor. The other key factor that we've looked at is those people with much lower mining costs than us typically move a lot more of their dirt with rope shovels than the hydraulic shovels, and we are gradually starting to move that way. We do need to redesign [it for the] pit to really make those rope shovels more efficient. But those rope shovels are somewhere between 1/3 and 1/4 of the cost per tonne of the load relative to the hydraulic shovels.

So again, we're going to move to a situation where we move more dirt with the rope shovels, and that is also tied up with our blasting and fragmentation project in the -- those rope shovels are not designed to be digging dirt that is not properly broken. And again, if you go back through the history of the company and you analyze why we had a lot of problems with the rope shovels and the [stick] values and stuff, a lot of it can be traced back to actually poor blasting practices. We fixed that, which we're well on the way to doing. All of a sudden, the rope shovels can become a lot more productive, and then our costs per tonne for loading goes down quite a lot. So this is more of a sort of a highlight of what we're looking at. I wouldn't say we've made huge improvements yet. But I think over the coming quarters, this is an area where I'm hoping to be able to tell people that we've actually made some big improvements.

Going to Slide 16. Look, again, this is a bit of a historical thing. People, analysts like to have a look at this. We're putting it in there. Quite frankly, I'm less worried about the mining rate per day than I am about the milling rate. I think that's the critical thing because at the end of the day, we are -- we have ample order for the mill. I want to get more through. Mining costs gradually starting to come down, albeit we are spending that extra money on blasting and fragmentation, which if you go back to in the past wasn't really being done. But I do want to point out the milling costs you'll see there, the milling costs have come down significantly.

And that's a function of the blasting effectively the extra costs we're spending in mining, but we're not -- we're seeing a big benefit in the milling costs. I think better maintenance and less breakdowns mean that we're not having to spend a lot of catch-up repairs, which are always more expensive. And we had at the start of year a backlog of about 50,000 man hours of maintenance items in the plant. As we kick those maintenance items off, we're not having to spend the money to actually catch up anymore. So I think we've probably got another year to catch up. Once we've caught up, then we expect to see milling costs actually continue to come down, and we expect to see plant availability go up.

On to the next slide, Slide 17. So Lower Detour is something that we're now starting to look at. There's a large tonnage of low-grade materials sitting underneath the current pit. It's not in the resource base. It's not in the life of mine plan. It's bulk tonnage, low-cost stopes. And we know the metallurgy. We know the geotech pretty well. It's obviously right next to the mill. This thing looks to be interesting. It is open down plunge. There has been a scoping study done in 2018, and we will launch into a prefeas study on that in next year as well as doing some drilling on 58 North. So we've been pretty busy the last 6 or 7 months getting our hands around the operation. Now we're starting to feel a little bit of comfort that we've got a runway in front of us and a plan. We're starting to look around and see what else we have around the place. And this does look fairly interesting to us.

So look, ESG is something that people are quite focused on these days. And I think, actually, we've got a pretty good story to tell here. We are committed to minimizing our environmental impact. We are compliant with the Church of England the Mining & Tailings Safety Initiative that's on our website. We've recycled about 97% of our process water. I think our environmental teams are actually doing a very good job with all of our stakeholders up there. In terms of our communities and people, we've got 47 indigenous contracts, which total more than CAD 150 million. About 21% of our workforce is indigenous. And in terms of governance, we are committed to transparent communication with our stakeholders. So we do have an active Board and shareholder engagement process where the chair actually goes out and speaks to various shareholders, independent of management, so they can take the pulse of that having it filter through management, which I think is in line with best practice of governance these days.

Moving on to the next slide, 18. This is our Bloomberg ESG score, which unfortunately they haven't updated for 2018. But again, you can see coming off a pretty low base, the company has done some quite good stuff, and scores pretty well, actually against itself over time, but also on a relative basis against our peers. So we think we'll start giving a bit more information on this. Hopefully, Bloomberg will publish their next -- they may stop by. But I think for investors, it's important to know that we are focused on profit, but we're also pretty heavily focused on our people and our ESG.

So on the permitting, we've had good progress this year actually. The closure plan was updated. It was submitted and approved after consultation with all of our stakeholders, including all of our First Nation's partners. We've put surety bonds in place for CAD 94 million at a lower cost than what we had the previous letters of credit backed by our revolving credit facility. So that provides increased surety for our stakeholders and increased our liquidity in the process. West Detour, obviously, has been a topic of discussion for people with the company. The company had not submitted the permit application for West Detour. We have now submitted that permit application. We are engaged in consultation with all of the relevant regulatory authorities and with all of our stakeholders, including our indigenous partners, and that's all of our indigenous partners.

So we are moving forward on this. Again, I wouldn't prejudge what a time line looks like on this. But I think we are in a very different place to where, historically, this company has been in the last year or 2. So it's critical for us to ensure that we maintain our social license. We have stepped up our vigilance in terms of making sure we get back on track with our relationships. We maintain that. And that explosives contract, I think, is a prime example where we've gone from a large contract with no First Nations or indigenous component to actually now having an indigenous component.

So with that, I'm going to hand over to my CFO, and he can talk about the financial numbers.

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Jaco Crouse, Detour Gold Corporation - CFO [3]

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Thank you, Mick. The $59.8 million of earnings from mine operations represents a record for us for a quarter, which is obviously underpinned by the record margin of 49% on a cash cost basis. The net loss of $12.6 million, we will address in the next slide as it mainly relates to the impairment of about $20.3 million. A fund review of the contract that mainly relates to the maintenance of our 795 trucks, we realized that the actual components we were entitled to for replacement that was historically estimated is a lot lower, and therefore, we had to take the write-down. This has no impact on our future cash flow as we're in the process in order to renegotiate this contract, and you saw the future benefits earlier on Slide 11.

We've also updated the closure plan. And after consultation with First Nations and government, most of this rehabilitation will happen post the closure of the mine, which means that we can't claim any of the tax that is associated with a deduction on those expenses, which is the next adjustment that we make. For the earnings reconciliation, again, you can see, despite the increased sales prices, we've outperformed on controllables. Despite slightly lower production, we generated about $16 million of earnings from cost reductions relative to Q3 2018.

On the cost reductions, we continue to optimize refinery selection. And in Q3 to reduce our working capital cycle, we ended up with only 59 ounces of final inventory at the end of Q3, which has obviously increased our cash flow quite a lot as well. Although we incurred about $3 million in higher mining costs, it was more than offset by $6 million in associated savings in the mill. Our all-in sustaining cost is also coming down as a combination of lower cash costs and the revised guidance on CapEx spend due to the deferral and cancellations. Just highlighting again that the large component of our all-in sustaining costs relates to the TMA in 2019 and 2020, and we see that reduced to about $25 an ounce by the end of 2022.

Again, strong cash generation in Q3. We generated about $37 million of free cash flow and net cash flow of $40.5 million and a operating cash flow per share of $0.50 compared to $0.47 for Q3 2018. The net cash balance as of today is about $65 million, which is subject to timing of payables, but it's indicating that this balance is still going up. On the financial risk management, just highlighting that we've got detailed disclosure on all of our hedges on pages 19, 20 and 21 in the MD&A. I just want to point out as well that we did not add any hedges since early July 2019. About half of our gold hedges for 2020 is in Canadian dollars, and it's got an implied core strike price of about USD 1,500 per ounce.

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Michael James W. McMullen, Detour Gold Corporation - President, CEO & Director [4]

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All right. Well, thanks for that. Just before I hand over for Q&A, in terms of closing comments, we're focused on delivering shareholder returns here. We want to continue to deliver safety improvements and have safe production. I think Q3 is probably a pretty good example of that. It's important for us to deliver on what we say we'll do for our indigenous partners, our shareholders and our employees. We want to optimize near-term cash flow through that mine plan optimization exercise and have a laser like focus on costs. And we want to foster a continuous improvement culture, and we want to reward the right behavior, which, I guess, traditionally possibly hasn't been the case here at the company. We would like to see people do the right thing, and we want to reward the people when they do the right thing.

With that, I'm happy to hand it over for Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Mike Parkin of National Bank.

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Michael Parkin, National Bank Financial, Inc., Research Division - Mining Analyst [2]

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Congrats on the good quarter. [They] certainly looks encouraging. So most of my questions, kind of, center around that. With the permit to push the mill daily limit up to 90,000 tonnes per day, can you just give us a bit of color in terms of timing on that? And is that a provincial or federal permit that you're looking to amend?

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

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That will be a provincial one. Again, you don't want to prejudge how long a process might take. We've been working on it for a while. So we've had to do the modeling work, which is pretty well done. I wouldn't want to be held to it, but I'm guessing it's probably a 12-month process, something like that. In our minds, we're thinking 2021 is when we start ramping tonnes up. But again, it is completely subject to the vagaries of the permitting process.

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Michael Parkin, National Bank Financial, Inc., Research Division - Mining Analyst [4]

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Okay. And then you made a brief comment in your presentation on the density of the deposit being just applied on the same density, but your feelings towards that being incorrect. And can you give a bit more color on exactly what you mean by that?

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

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Yes. Well, look, if you read the technical report, you'll see there's just a standard density of 2.9 applied across the entire resource. That's probably okay. But when we actually do the reconciliation now and we look at our truck counts and everything, and we're doing more work on the density, it's probably a bit light on by somewhere like 4% or 5%.

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Michael Parkin, National Bank Financial, Inc., Research Division - Mining Analyst [6]

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So that's part of the reason why you're getting positive tonnage reconciliation?

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Michael James W. McMullen, Detour Gold Corporation - President, CEO & Director [7]

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Yes, that's correct. So that -- let's call it, 25% year-to-date, that probably accounts for 4% to 5%. And then the other, let's call it, 20% account -- is accounted for by either internal waste that actually is oil, just based on the drill spacing that was in the resource and now we're at much tighter spacing and peripheral. And it's probably that peripheral that is a slightly lower grade [stuff] .

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Michael Parkin, National Bank Financial, Inc., Research Division - Mining Analyst [8]

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Okay. That's great. And then on the savings through to 2022, you're talking about $35 million. Maybe a better question for Jaco on what's a split on that in terms of OpEx and CapEx is like some of the maintenance cost? Is that actually like a sustaining CapEx item? Or is the bulk of that going to kind of flow through OpEx?

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Jaco Crouse, Detour Gold Corporation - CFO [9]

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The bulk of it will be on the operating cost. Obviously, with some of the -- on the component [major] replacements, on the 795 trucks, there's a small capital component associated with that. But I would say it's probably about 90% allocation to operating costs.

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Michael Parkin, National Bank Financial, Inc., Research Division - Mining Analyst [10]

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Okay. And then in terms of a go-forward basis, is that sustainable? It's just that you've given that as like a short-term kind of target. But it definitely sounds like it's something that should continue going on for the rest of the life of mine?

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Jaco Crouse, Detour Gold Corporation - CFO [11]

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Yes. It's through 2022. So obviously, those are all the contracts that we're focused on right now. Obviously, we're still going through that process. But that is the total savings that we're expecting over this period.

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Michael Parkin, National Bank Financial, Inc., Research Division - Mining Analyst [12]

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Right. And then on rolling contracts, you could hopefully potentially kind of maintain that kind of cost structure?

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Jaco Crouse, Detour Gold Corporation - CFO [13]

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Correct.

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

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Right. And then on the TMA, [budget] seems to be a positive improvement there. With this massive positive tonnage reconciliation, is there going to be a need for fourth cell to be added to the life of mine plan?

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

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No, it doesn't look like at the moment. But again, I don't have [that full answer for you.] I guess -- I'm not sitting here telling you that we're going to get 25% increase in tonnes for the next 20 years because I don't have that answer yet. It doesn't look like it. We have excess capacity, but that's really why I need to do -- we need to get that resource like that's a critical thing for us to get in place.

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Michael Parkin, National Bank Financial, Inc., Research Division - Mining Analyst [16]

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And what -- I can't recall off the top of my head. Is the 3 cell design -- I think that factored in West Detour tonnage as well. Am I correct on that?

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

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Yes, that's correct.

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Michael Parkin, National Bank Financial, Inc., Research Division - Mining Analyst [18]

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Okay. And just one last one. In terms of like timing around getting a new life of mine plan, is there -- have you got down a path far enough to kind of give us an estimate of when we might expect that?

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Michael James W. McMullen, Detour Gold Corporation - President, CEO & Director [19]

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No. It will be sometime next year, but we haven't, because, again, it's really driven by that resource. And so how quickly we can build like [crazy] on the bottom of the [pipe] with the asset.

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Michael Parkin, National Bank Financial, Inc., Research Division - Mining Analyst [20]

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Okay. So kind of...

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Michael James W. McMullen, Detour Gold Corporation - President, CEO & Director [21]

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I can't give you the timing right at this point.

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Operator [22]

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Our next question comes from Daniel McConvey of Rossport Investments.

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Daniel McConvey, Rossport Investments LLC - Founder & Portfolio Manager [23]

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Congratulations on a great quarter, great free cash flow and positive cash and debt. First question. On the stripping on your Slide 12, just -- it looks pretty obvious, but I just want to confirm. So you're looking at 100 million less tonnes moved in next 3 years, which CAD 3 roughly a tonne, whatever it [does move] , that's roughly $300 million less than the original plan. Is that right?

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Michael James W. McMullen, Detour Gold Corporation - President, CEO & Director [24]

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Yes. That's correct.

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Daniel McConvey, Rossport Investments LLC - Founder & Portfolio Manager [25]

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Okay. Now in your slide you're showing the grade reconciliation [on] 10, I mean -- and you just kind of referred to this. But your -- you have some great ounce reconciliations in the last 2 years. You're saying that's not going to continue like that forever. But is there any reason for the next 2 or 3 years, given where you are in the ore body, that you would think that will continue near those rates or above 10% versus turning the other way?

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Michael James W. McMullen, Detour Gold Corporation - President, CEO & Director [26]

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Well, I'm just -- all I'm saying to you is that I can't sit here today and tell you hand on my heart that it will continue. I'm not saying it won't continue, but that's what we need to do with new resource. What I think we're pretty comfortable on is that we're seeing 4% or 5% more tonnes just from the density. We're not seeing any reason why that wouldn't continue. But I'm not comfortable to sort of forecast based on the historical performance what that will be going forward. We've got pretty good visibility for the next 6 to 9 months, or so, and moderate visibility for a bit after that, but not enough for me to give you a forecast here right today.

So the more short-term end of that forecast in terms of earthmoving schedule, we do have confidence in terms of what the reserve reconciliation looks like because we have a short-term reconciliation block model. But a lot of the rest of the reduction in waste is actually as a result of using discounted cash flows to plan the pit as opposed to undiscounted. And the reason why you see a bit of a difference next year, but really it's the following 2 years where the big difference is, is that this is a big pit. And as we change the [phasing of] the pit, we actually need to have new all roads similarly with the -- using the shovels more efficiently. We've actually changed the bench height. This is not a small operation that you can just make a decision and change it next quarter. It's big.

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Daniel McConvey, Rossport Investments LLC - Founder & Portfolio Manager [27]

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Okay. Lower Detour Underground, can you mine that concurrently with the open pit, once you get through the studies, assuming it's as you envision it now?

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Michael James W. McMullen, Detour Gold Corporation - President, CEO & Director [28]

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Possibly is my answer. But again, we haven't done the study.

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Operator [29]

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Our next question comes from Carey MacRury of Canaccord Genuity.

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Carey MacRury, Canaccord Genuity Corp., Research Division - Analyst of Metals and Mining [30]

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Congrats on the great quarter. Just had a question on -- again on the reserves resources. Clearly you're working to update the model there. But your price assumption of CAD 1,100, just wondering do you plan to change that? And is there a decent upside to higher metal prices in terms of the open pit? Or is it relatively insensitive to metal price assumption?

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Michael James W. McMullen, Detour Gold Corporation - President, CEO & Director [31]

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We'll probably run at something like USD 1,250 and [CAD 1.25,] I think. And that obviously, you get -- you will get a bigger pit at that. Obviously costs have moved around a bit as well. So mining costs are a little higher. Processing costs are a little lower. So net-net, yes, you probably get a bigger pit. But actually, probably the more important thing, I think, is we are starting to use a variable cutoff grade. So in the current reserves, there's a fixed [0.5 gram] cutoff grade, which actually is above the marginal cutoff grade. And there is a lot of material in the pit that's currently classed as waste that would be above marginal cutoff grade, but below 0.5. So that's the other pretty important bit of information that -- work stream that underlies really optimizing that cutoff grade.

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Carey MacRury, Canaccord Genuity Corp., Research Division - Analyst of Metals and Mining [32]

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Do you have any order of magnitude that you can talk about that you'd see in terms of ounces?

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Michael James W. McMullen, Detour Gold Corporation - President, CEO & Director [33]

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No.

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Carey MacRury, Canaccord Genuity Corp., Research Division - Analyst of Metals and Mining [34]

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No?

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Michael James W. McMullen, Detour Gold Corporation - President, CEO & Director [35]

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Not at this stage. We've obviously got a bit of a view, but no, I think it's premature for us to talk about that at this point.

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Carey MacRury, Canaccord Genuity Corp., Research Division - Analyst of Metals and Mining [36]

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Okay, fair. And then just given all the moving parts in 2019 on tonnes moved and -- is there any guidance you can give into 2020 on the grades specifically? Is it more or less going to be in line with the previous mine plan? Or any sort of indicative guidance you can give there would be great.

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Michael James W. McMullen, Detour Gold Corporation - President, CEO & Director [37]

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Not at this stage. We're going to come out with probably a 3-year guidance early next year at this stage. So because there's a lot of work underway at the moment for [next stop] . When we again coming back to a credibility point -- when we come out and say that we're going to do something, we want to be very, very sure that we're going to do that, which perhaps hasn't always been the case with the company.

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Operator [38]

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Our next question comes from Don Blyth of Paradigm Capital.

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Don M. Blyth, Paradigm Capital Inc., Research Division - Analyst of Gold [39]

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Congrats Mick, whole team, on an excellent quarter here. Just a bit of a follow-up on the permitting to increase the mill throughput. Can you give us a sense of sort of what's involved there? For instance, would this require any sort of review or update of the environmental permitting? And would any public sort of stakeholder consultations be required?

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Michael James W. McMullen, Detour Gold Corporation - President, CEO & Director [40]

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Yes. Well, it pretty all revolves around air quality. And so there's modeling work that's being done and being done that looks at air quality from crushing, dust, explosives and stuff, and then you've got to then resubmit that. And yes, there'd be a public consultation process. It's a process, permitting works in Ontario. But it is a process you've got to go through.

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Don M. Blyth, Paradigm Capital Inc., Research Division - Analyst of Gold [41]

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Okay. Fair enough. And you mentioned more drilling on Zone 58 North. How would you sort of rank the relative importance of that Zone 58 North versus, say, the Lower Detour Underground and West Detour? Have you set any sort of budget for Zone 58, just to get a sense of how big that is?

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Michael James W. McMullen, Detour Gold Corporation - President, CEO & Director [42]

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We haven't -- we have actually -- we put a draft budget up. We haven't approved it yet. But it's not massive. We're not looking at putting a [decline] in this year, I think, at some point, had sort of been proposed at one point. But no, there's a bit of drilling to go in there. I think there's -- it's still open. We'd like to sort of get a bit of a better feel. In terms of moving the needle from an economics point of view, probably lower than you saw because it's just bigger. We have the potential to move the needle more. But conversely, 58 North is high -- is reasonably [good] priced. It's small tonnage. It would flow through the mill and possibly to come in earlier. Again, coming back to that question of do you mine Lower Detour concurrently with the pit or later? We don't have that answer yet. So we've been pretty busy here sorting the core business out. As we come out of that and we've now got a bit of a plan. We've got the resources to actually tackle both of those things, I think, going forward.

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Operator [43]

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(Operator Instructions) Our next question comes from Kerry Smith of Haywood Securities.

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Kerry Smith, Haywood Securities Inc., Research Division - VP & Senior Mining Analyst [44]

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Thanks, operator. Mick, in October, you suggested that the grade was sort of plus a gram. Is that kind of the grade that you expect to see through the rest of this quarter then?

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Michael James W. McMullen, Detour Gold Corporation - President, CEO & Director [45]

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Yes. It's somewhere in that order. Like the average mill grade won't be that because there will be days when you won't be getting enough to fill the mill out of the pit, and so we'll be pulling all that stuff out. But we'll certainly be -- I must a bit -- I can't recall what the average grade forecast for the quarter is, but it's probably [an ounce,] maybe closer to 0.95. But it's certainly going to be -- it's a strong quarter. You can tell from that production quarter-to-date that it's looking like a pretty strong quarter.

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Kerry Smith, Haywood Securities Inc., Research Division - VP & Senior Mining Analyst [46]

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Right. Okay. Great. And then maybe, Jaco, just on the payables that were up in the quarter. What is the primary driver for that increase in the payables? Are you just pushing the payables out or what's going on there?

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Jaco Crouse, Detour Gold Corporation - CFO [47]

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No, it's the same as what we did in -- I think we disclosed it in Q2. So part of this was -- a lot of our payables was done on a prepaid basis historically. And so we're taking that to more market terms where we go to 30 to 45 days.

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Kerry Smith, Haywood Securities Inc., Research Division - VP & Senior Mining Analyst [48]

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Okay. So the payables, as you said, will probably be pretty [static] now on a go-forward basis then?

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Jaco Crouse, Detour Gold Corporation - CFO [49]

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Yes. I mean obviously, there's some seasonality in there because if you look, again, where our largest capital spend is in Q3. So I'm expecting that number to come slightly down in Q4, but it moves with what the total outlay is on CapEx as well as OpEx.

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Kerry Smith, Haywood Securities Inc., Research Division - VP & Senior Mining Analyst [50]

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Okay. Okay. And -- that's great. And Mick, is there a planned maintenance shutdown in Q4? Just remind me if -- and if there is, what [coming days] that might be?

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Michael James W. McMullen, Detour Gold Corporation - President, CEO & Director [51]

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Yes, there will be a short one. There's always -- there's 1 every quarter. The June quarter has 2. And actually, the September quarter, the Q3 this year, we actually had -- it was 1, but it was a long one. It was -- or, let's say, 12 days. So we have a short one planned about now, actually, 4 days, I think, from memory, but [it's not the only 1.]

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Kerry Smith, Haywood Securities Inc., Research Division - VP & Senior Mining Analyst [52]

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Okay. Okay. And you've brought this third rig in for the grade control drilling in the pit, the third RC rig. How far ahead are you now with the grade control drilling in terms of months of production or however you want to characterize it? And what will that third rig allow you to get to?

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Michael James W. McMullen, Detour Gold Corporation - President, CEO & Director [53]

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Well, we're not far enough, obviously, because that's why we brought an extra rig in. We've got pretty good coverage for 6 months. We've got, I guess, you call it patchy coverage for the following 6 to 12 months. And we would like -- in a perfect world, I'd like to have 2 years ahead of me. And again, that money that we're spending is on our mining costs. So we're spending that money upfront, and we're not getting the benefit until later periods. We'll not get any benefit really because we haven't really run the resource. But I just want everyone to understand when people say our mining costs have gone up, there's a couple specific reasons for that, [parts] mainly. And -- but on a total business basis, that's money well spent.

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Kerry Smith, Haywood Securities Inc., Research Division - VP & Senior Mining Analyst [54]

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Right. Okay. And then maybe just my last question. You've had some issues for a while with one of your First Nations groups, I guess, with the filing of EIS. Can we assume that, that relationship is sort of amended? Or how would you characterize it?

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Michael James W. McMullen, Detour Gold Corporation - President, CEO & Director [55]

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Well, look, I would think we could characterize it by saying, obviously, people know there was an election there in early July. I think it's also fair to say that the company probably didn't live up to its commitments. And therefore, I'm sort of -- I'm quite keen to make sure that -- I guess, there's 2 new leaders in town. And there's a desire, I think, from both sides for us to have a better working relationship. And that we -- I think it's evidence the fact that we got the closure plan update approved, which all of our First Nations partners had to comment on. The fact that we now have been invited to submit the West Detour permit application, and that being, and we're going through the consultation process. I think we're in a different place to where the company has been for the last 2 years, yes.

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Operator [56]

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Our next question comes from [Tim Tahl] of TWP Investments.

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Unidentified Analyst, [57]

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Can you hear me?

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Michael James W. McMullen, Detour Gold Corporation - President, CEO & Director [58]

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Yes.

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Unidentified Analyst, [59]

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Good. Congratulations guys on a great quarter. Looking across the board, it looks like your total cash costs went down from your guidance last quarter, all the way down to $730. You're all-in sustaining costs were great at $1,198, which is on the lower end of your guidance. And your free cash flow, if I'm not mistaken, basically quadrupled from $7.3 million to $37.5 million. So my question is this. You guys are in great shape moving in the right direction. You've got tremendous cash position, $144 million, down to it looks like about $100 million in debt, if I'm not mistaken. How do you folks see the future looking over the next year or 2 in terms of maximizing your stock price? And are you receiving any interest? If I were a major gold company, I'd be sending you guys love notes right now. Have you received any interest? And what type of price -- if you did receive interest or someone was interested buying your company, what type of price would be attractive to you folks given the environment we're in now where it appears we might be in a bull market for gold?

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Michael James W. McMullen, Detour Gold Corporation - President, CEO & Director [60]

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Sure. I'll take that one. Just to clarify, we've actually got $44 million of net cash. So yes, we've got $100 million of debt, but we've got $144 million that we had at the end of Q3. Today, we've got $165 million. So we're net cash, just to clarify that. In terms of what are we doing to get our stock price up? Well, I think it comes back to deliver on what we say we're going to do, which, again, historically, company probably hasn't had the best reputation for. It's all about having been [outspoken a lot to] shareholders about why don't they buy more of the shares, why don't they buy any of the shares? It's that the free cash flow was always coming 2 or 3 years out. And every year, that was another 2 or 3 years out. So we -- from day 1, when I turned up here, we said we were going to run the business as a business, and we're going to generate free cash flow and sustainably over the long term. There's no point [stop and waste] movement, and then all looks great for a quarter or 2 and then you run out of all.

In terms of your other question on M&A. So actually, in terms of the stock price, I think, if we do what we say we're going to do and we deliver on what we say and we actually optimize the business, and we get our contracts right, and we make money for shareholders, I think the share prices will look out for itself, quite frankly. I'm on the road a lot. We educate people about the company. There’s obviously -- people know, let's call it, the [old business as usual]. We like to try and change that view. Do that, I think the share price looks after itself. In terms of your other question, it's not appropriate [for me] to be discussing that sort of stuff on a conference call. All I can say to people is that we're open to all opportunities to create value for shareholders. Other than that, I don't think we can comment any further.

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Operator [61]

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

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Michael James W. McMullen, Detour Gold Corporation - President, CEO & Director [62]

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Well, thanks, everyone, for dialing in, and we look forward to speaking to you again after our Q4, which, at this stage, looks like being a pretty strong quarter. Thank you.

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Operator [63]

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