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Edited Transcript of DGC.TO earnings conference call or presentation 31-Jul-19 2:00pm GMT

Q2 2019 Detour Gold Corp Earnings Call

TORONTO Aug 2, 2019 (Thomson StreetEvents) -- Edited Transcript of Detour Gold Corp earnings conference call or presentation Wednesday, July 31, 2019 at 2:00:00pm 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

* 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 Second Quarter 2019 Conference Call and Webcast.

(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 very much, and thanks everybody, for joining us this morning. We'll run through our presentation here this morning and we'll have a Q&A session at the end and happy to take questions at that time. So everybody should be able to see the presentation we're going to run through today.

The first slide or second slide, I'd just like everybody to read at their leisure, the usual language on the forward-looking statements and the notes to investors on Slide 3.

Moving into today, the management participants will be myself, the President and CEO of the Company, and Jaco Crouse who's our CFO. We also have in the room, Sheila, our Controller and Sandy from IR just in case we need some additional assistance.

So going into Slide 5, safety is very important to us. We've seen a favorable trend in our total recordable injuries. I'm still of the belief that we can do better. I think it's important for us to have a safe production and so this is front and center of the way we do our business actually. So we're looking to further drive this injury rate down and we had some sort of -- we have a few plans in place of how we might get to a better result.

Going to the next slide, Slide 6, so this is a graph that I was using at our Annual Meeting presentation where you would think that our share price, in general, should track the Canadian dollar gold price, we're a Canadian company, and to some extent back up until late 2016 early 2017, the Company was tracking the CAD dollar gold price for a variety of reasons, and I think many of it related to sort of lack of delivery, lack of engaging with the marketplace, the Company has significantly underperformed that Canadian dollar gold price.

As everyone is aware, there was a change in the Board late last year. I started on the 1st of May. Jaco started towards the end of June. Really getting that share price back to where it needs to be is all about executing and it's about regaining shareholder confidence and trust. So trust, it comes about by us communicating very clearly with the market, by us listening to our shareholders to what they want, and then delivering on what we're saying in the marketplace. And I guess historically, perhaps, this Company hasn't had the best track record of that.

And if we go to Slide 7, which is a similar graph, but on a much shorter time scale. I think we've started to get that market's trust back a little bit, as you can see by this trend in the more recent past. Obviously, if you go back to the previous graph, we still have some ways to go to recover all of that lost ground.

So going on to Slide 8, our Q2 results which we announced late yesterday afternoon, reasonably strong on the gold production 150,000 ounces; revenues of a couple of hundred million; total cash costs of $793 an ounce; and the all in sustaining cost of $1,143. I'll just like to point out that our average realized gold price for the quarter was USD 1,309. Obviously, we sit at a higher price today. And so that would have a reasonable impact on our financial numbers.

Overall, I would say, it was a solid quarter for us. Again, for us it's all about delivering on market expectations and the guidance we have out there and so I believe that we've done that with this quarter and the all-in sustaining cost was probably better, I think than people were expecting. We have pointed out in the past that just given the climate up there, we spend the majority of our capital during the warmer months of the year, particularly on the TMA. And despite a lot of project work underway, our all-in sustaining cost still came in at a pretty respectable $1,143, certainly compared to I think, where we had been guiding to.

So going to Slide 9, what drove those results? If we look on the left column, Q2 is the only quarter where we planned to have 2 shut downs. So again historically, the mill had sort of been run basically to failure. There was a real lag of planned or preventative maintenance, and that's not the way to run a processing plant or any planned in fact or your car when you drive it around, you don't drive it until the thing breaks down.

And so there has been a move towards more planned shutdowns, to get preventative maintenance happening, and Q2 was the only period where we have that. So obviously, if the mill was shut down for maintenance, it's not running. So despite that, we still managed to mill 5.4 million tonnes for the quarter.

We have seen the recovery increase quite a bit, certainly more than what we had been expecting, and in terms of where the recovery for the guidance was. And that really has come down to our team on site has been operating the mill in a much more uniform manner. Processing plants like to operate in a sort of steady state, steady-as-you-go type way. And obviously, if you've historically run it in a very up and down manner, that makes it hard to stabilize the recovery.

The other big things that have been happening is, you know, we have been spending money on the mill capital projects, really which is to catch up on historical maintenance capital that just hasn't been spent. And we're getting a much more uniform feed to the mill from the mine, as a result of the blasting program that's been implemented, and also the grade control work that allows us to get a better blend into the mill in terms of the minor elements that can have an impact up or down on recovery.

A lot of that comes down to planning, a lot of it comes down to, yes, we have been spending more capital in the mill, as we've guided to, but we're getting a return on that capital. And once those projects are done, the net capital reduces. We are looking to gradually increase our average tonne per day, right. So month-to-date for July, as of the day before yesterday, we were at about 68,000 tonne per day on average. So you can clearly see that the mill will do significantly more than what our current average has been.

The challenge for us now is to get the run time up. So on a tonne per day or a tonne per hour basis, this mill clearly will do significantly more than the 59,000 tonne per day we averaged in Q2, but it's getting it running to more often, and so I've challenged our team on site to look for ways to improve that. They have, as you can see on the Q2 results, despite the 2 shutdowns that were planned, we still managed to get 5.4 million tonnes through the mill. We are seeing some success in this area, we think that there's further opportunities there and we see this as definitely an area where we can make some improvements in the operations.

Moving to the 2 right columns. If we look at our mining, so our mining rates were at 296,000 tonnes per day. That's lower than what we had previously been guiding towards. And that really is a function, it's a good news story, it's really is a function of the block model. So when we have mined our reserve, we have picked up significantly more ore than that reserve has indicated.

And if the mill is at capacity, at its current capacity, if our running mine stockpile is large and full and you're getting significantly more ore out, you actually have to slow your mining right down because you have no way to put that ore and sticking material on a stockpile is very inefficient. It's basically working capital is sitting there. You also have to pay the cost of picking it up and putting it from the stockpiling into the mill, so the least amount of re-handle we can do, the better.

As a result of some of these changes, we are parking up some of our mining equipment. One of our, 6060 shovels was parked in early July. So we've managed to mine 26.9 million tonnes for the quarter. Strip ratio of 4.3-to-1 is a little bit lower than what we planned, mainly because of this block model reconciliation. The mine is performing quite well. Can we do better? Absolutely, we feel that by parking up some of the excess equipment there will be cost savings to be had, and we're not getting rid of that fleet, so if we need it, we can put it back into service as and when required.

So going to Slide 10, I touched on the block model reconciliation. This is quite a good new story. If you look at from 2014 to today, the reserve has produced about 7% more ounces than what the -- when we minded and then what the reserve tells us. But if you look at the first half of 2019, you've seen that it's actually produced about 23% more ounces, mostly through more tonnes, a little bit more grade. So this is not just taking lower grade material around the periphery of the ore body. This is the equivalent or slightly higher grade but big tonnage increase.

And what do I put that down to? We saw this trend start in 2018. There was some discussion that it was because we were mining the Campbell pit crown pillar, which we sort of were in 2018, but that's long finished. I would put it down to the fact that we are doing this Reverse Circulation or RC grade control drilling in the pit, which gives us much better granularity of the resource model than the current block model does. It also means that because we're not sampling blast holes for our grade control, we have the data much earlier. We can do much better dig plans, and it reduces dilution. So we think this is a pretty good new story. Obviously the question will be is, well how long does that continue for? How far out can we forecast it?

And the answer to that is that we need more data and we're looking to source at least one if not 2 larger RC rigs to put into the pit and just dedicate a drill as much as we can to get our hands around that issue. But certainly, what we see in the short term, in the short-term planning, we continue to see a pretty positive trend, which then allows you to slow your mining write down, subject to the team in the mill not increasing the mill throughput.

So that's quite a good story. I'm happy to take questions later on when we get to the Q&A session. But we believe that this is -- this is quite important for us in terms of the near-term outlook for the business.

So moving to Slide 11, the way forward, when I came onboard, we sort of said we'd look at all areas of the business and lots of nice statements and motherhood statements about things that we would do. But I also said we would come back with 5 things that we would report to the market and track our progress on. And I guess this slide and the next slide really are those 5 things. We are in the process of renegotiating a large dollar value contracts. We spend somewhere in the order of CAD 400 million a year on contractors, CAD 300 million, CAD 400 million, something like that.

We believe that there are some opportunities within those contracts and we're renegotiating as many of those as we can. Nothing really to report in terms of outcome at this point, so I'd say just watch this space. We've also said that we need to improve our finance and procurement systems and management of contractors and that's really still to come, I guess, with our new CFO, having he only started just over a month ago, it's a bit unfair to sort of asking to have identified all the issues and come up with solutions in a month, but I think we're well on the way to working out some plans there on what we're going to be able to.

We did say previously that we would review our CapEx profile. What does that mean? Well that means trying to bring cash flow forward. So when we look at the Company cash flow profile, as it currently sits, quite a bit of that cash flow is back-end loaded, and we need to see if there's a way that we can bring forward our cash flow.

So if we can bring forward some cash flow, obviously, that will have an impact on our valuation, and there is a couple of areas that we're doing. I'm going to go in backwards order; so non-essential CapEx, we're looking to defer that as much as possible. We're looking to look at the pit design and how do we get to the final pit design, and I guess if people have read the 43-101 technical report in detail, you will have noticed that, that is based on undiscounted cash flows.

And obviously, if you assess your pit based on discounted cash flows and we use a 5% discount rate, what does that mean, particularly when combined with our positive block model reconciliation? So we believe that there is potential to defer some waste mining. We are now guiding that for this year, we will be at 105 million tonnes to 108 million tonnes and we will still fill the mill. And so, that work is a work-in-progress.

We see this is having some reasonable potential to bring forward cash flow and once we've got to a point where that work is now more advanced and more firm, we'll then be able to make some decisions in the mine in terms of what that mine waste movement schedule looks like and we'll come back to the market and let you know.

But it looks at this stage that that is quite a promising avenue for us to go down, and irrespective of the mill -- the block model reconciliation, we still believe there is potential to defer some waste as well.

So going to Slide 12, the other areas are to then track and improve productivity. So about 60% to 70% of our costs are fixed and productivity, if we can get more tonnes mined or more tonnes milled per site hour, obviously you get a similar reduction in your unit rates. So we're tracking tonnes mined and milled per site hour worked.

If you look at that trend in the past 5 years, both of those metrics have gotten, I guess worse. If you want to look at it in those terms, they've gone lower. Our goal is to arrest that trend and stop turning it around. And I guess if you don't measure something, you're never going to improve it. So now, historically, these are not metrics that have been measured. We're now measuring them. We're tracking them and now we're going to look for ways to try and improve on them.

I touched on the plant throughput, so if we can get over 70,000 tonnes a day on a daily basis, how do we get the average up? Well really it's about better maintenance; it's about reducing that downtime, both planned and unplanned; and getting more run time. So the process plant is definitely not running at a sort of a run time that I think is where an operating plant that's been running for 6 years should be at. We have some opportunities in this area.

On fleet productivity, this is another big area where we have a lot of fleet moving around the pit. You're moving circa 300,000 tonnes of dirt a day. We do see some opportunities here and not really ones that required capital investments. This is more about management. Our fleet dispatch system is definitely a big opportunity here. Reducing the amount of time trucks are waiting to get loaded, making sure that that fleet is moving the whole time and doing something useful. So not sitting and idling, but actually that fleet is just moving the whole time and it's just in continuous motion.

And I'd say again, when we look at our business as we sort of have now, it's definitely not best in class. So we see that as an opportunity. Again, fleet downtime is -- we still have preventable issues, such as tires -- downtime for tires; this is a mostly preventable downtown. So we have a bit more work to do here, and I think again not dollars involved, but more of a management type issue. So again, we see opportunities here that we don't need to spend large CapEx dollars in order to realize those opportunities.

So that's what we're tracking. We will report to the market every quarter on our progress. Some of these things are more longer-dated things. But as we have progress, we'll come back to the market and you can track us on how our performance is going into those 5 items.

So moving to the next Slide #13, so I talked about improving fleet productivity. So this is just an example of some of the fleet that we've got parked up that we don't actually use at the moment. We've got a large amount of fleet that's excess and really what we're looking to do is sort of trying to drive higher productivity of the fleet that we use.

You know, anytime you put operators on a piece of gear, it's costing you money. Even if you are still moving the same amount of dirt, if you've got 3 extra shovels or 3 extra trucks, you're still moving it, but you're not being efficient in moving it. There is extra operators, there is extra maintenance, there is extra fuel and so what we want to do is, benchmark ourselves against what should our fleet availability and utilization be? What is it now?

If we're not the availability and utilization that we should be at, what have we got to do to get there? And is actually having excess fleet skewing our numbers such that we're actually -- we're not being as efficient as we should. We have all these gears still. If we need it, we can put it back in service. But our view is that we should try to be as efficient and as good as we can be, and just having spare fleet sort of that we use for a few hours a day is not driving that cultural change. So that's why some of this stuff is parked up.

So moving on to Slide 14, I'm going to just cover the cost and then I'll hand over to the financial part of the deck to Jaco shortly. We have squeezed inventory out. We are seeing slightly higher mining unit rates. That's really as a result of the increase in our explosives cost and longer cycle time to the TMA as we haul waste out there during the summer period. In terms of quantifying that, it is in the MD&A, but broadly explosives is, give or take, about $0.06a tonne and the TMA cost was sort of $0.10, $1.11 a tonne, roughly.

We are seeing a benefit from that in some reduction to the TMA costs. But the main benefit is, then you have lower milling costs and better recovery actually. So we're getting a finer product fed into the mill or into the crushers that then goes through easier. We can get better throughput. We have less wear and tear. And I think because we get a more uniform feed product through, we are definitely seeing the benefit of the recovery coming through as I compounded into that better operating practices from the teams, no doubt hoping that as well.

Now whilst our AISC was very good for the half, we do expect AISC to go up a little bit into Q3, just given the timing of the TMA Cell 2 construction and we have some planned component replacements in the mining fleet for the quarter. Again, to remind people that TMA cost for this year is about $140 an ounce. Once we build that cost over the next -- once we build that facility that cost disappears or reduce significantly to around about $20 an ounce, $25 an ounce. So once we can get through that, all of a sudden, AISC starts to come down quite a bit.

So moving on to Slide 15, I think, operational focus. We've got reasonable metrics on a go-forward basis. Again, the mining -- the mining rate, we have taken the conscious decision to slow mining down. We do not have a spot to stick the extra ore if we mined at a higher rate and therefore it makes good business sense to slow that mining down. You can say milling costs have come down, mining costs are a little bit up and mill throughputs continuing to track higher, again despite having 2 shutdowns, most of the other quarters where we've got 1 shut down, we're at a similar number, slightly lower. We managed to get the result we did despite having 2 shut downs makes a lot [of sense].

So with that, I'm going to hand over to Jaco and he can go through all the finance side of the project.

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Jaco Crouse, Detour Gold Corporation - CFO [3]

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Thank you, Mick. Earnings from operations for the quarter was $33.6 million. Earnings per share is around about $0.09 with adjusted earnings at about $0.06. The main difference between these 2 is the reversal of the unrealized loss on the revaluation of our hedge book, which was completely offset by the foreign exchange tax impact on our revaluation of our non-monetary assets and we've got a detailed reconciliation of that in the MD&A, as well as on Slide 27. And net cash position for the period is $203.4 million.

As you can see, the goal for us is to run this business on a net cash position. We've also repaid about $50 million on the revolving credit facility throughout the quarter and our outstanding debt is only on the term loan, which should be maturing in July of 2020, and we are actively engaging with our Syndicate in order to revisit the credit facility as a whole and we hope being able to provide more detail on that in Q3.

We also like to point out, so even though we are in a net cash position for Q2, we do have this increased capital spend in Q3 relating to the TMA which should be partially offset by the increase in the gold price, where we are seeing spot today at about $130 higher than what we saw in Q2.

On the financial highlights, just again we're trying in order to improve transparency and give you guys a good sense of where the drivers within our earnings numbers are. And so even though we saw the stronger gold price as well as a weaker Canadian dollar that is almost completely offset by payments to our indigenous communities, which is predominantly price-linked. And although we've released about 3,000 ounces from inventory in Q2, 2019 compared to Q2, 2018 these additional ounces came at a lower margin and therefore reducing our overall earnings for the period.

Unit cost variance, excluding the weaker Canadian dollar on a production basis was down slightly and that was mainly due to the fact that we've got less dilution of our fixed costs.

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

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And if I can just make one comment, just on the negative volume variance; from a business point of view, it makes sense to release inventory, but from an accounting point of view, it actually had a negative impact, but I'll much rather have the cash out than not.

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Jaco Crouse, Detour Gold Corporation - CFO [5]

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And you can see those numbers in terms of the free cash flow that we've generated that we've also highlighted in the MD&A.

Again, just in order to give you a detailed breakdown of the production cost for the quarter-over-quarter. So as you can see, we have essentially moved some of the mining costs or some of the milling costs into the mining, so increasing the powder factor in the explosives is giving us that improved fragmentation, which provides us a lot of benefits on the efficiency of the use of consumables within the milling circuit.

We've also seen a reduction in the mill labor cost, which is predominantly related to the improved management of the planned shutdowns. The site G&A slightly increased due to additional spend on -- just reducing our redundancy and mitigating IT risks on site.

On the financial risk management side, I just want to point out that even though you would see the ceiling price there of $1,452 and Canadian equivalent of -- or Canadian ceiling of CAD 2,009 an ounce, these are Asian collars, which means that the average gold price within a month need to be above that level for us in order to either trigger the floor or the ceiling. We also provided, I think a lot more detail in the MD&A on exactly on how these work.

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

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All right, well, look, thanks for that. On Slide 21, we're looking at our guidance. We've elected to keep the guidance the same for the year. In terms of where we think we'll come at this point in time for gold production, we expect to be at the higher end of that guidance for gold and at the lower end of guidance for all-in sustaining costs.

Just in terms of quarter-by-quarter, we'd expect -- just based on our short-term forecast, we have a slightly weaker Q3 for ounces and a slightly stronger Q4. Again, I'm a firm believer in not surprising the market either way, so we just like people to sort of know that that's where we are.

We have revised our total tonnes down to 105 million tonnes -- 105 million tonnes, 108 million tonnes versus the 115 million tonnes that we had before. Again, really just driven by the positive block model reconciliation. We are still working on if there is other opportunities to reduce that waste movement. We will come back to the market when that work is done. And, look gold recovery is obviously, at the higher end of guidance. We've got some potential to go through the top-end of guidance on that. It's been a pretty good result out of the guys on site.

And if we go forward onto the next slide, in terms of closing comments, circling back to the first slide I spoke about, look, safety improvements and safe production is really key for us. We have got work to do in this area. I think we've got sort of people understanding that it's important to us. Now we need to actually deliver those results.

Deliver on guidance; again, with the history of the Company, it hasn't had a great track record of delivering on guidance. We are firmly, firmly focused on making sure that we deliver on our guidance. Obviously, do better where we can. And I know people will ask me, well, can we do much better? For this stage, we just say, this is our guidance, we want to make sure we hit it.

Optimizing our near-term cash flow; I speak often as running this business as a business of maximizing the free cash flow. We've obviously done a pretty good job. If you look at our net cash position, which is the first time it's been net cash for quite some time. We're pulling every lever we can to get the best cash flow we can. Obviously, gold prices are very strong. So we can optimize our cash flow, now is a great time to do it.

We're looking for incremental improvements on both cost and production. Anything we can do to squeeze costs, anything we can do to squeeze ounces, we're chasing those opportunities. And our focus is on all-in sustaining costs and cash. The days where we sort of look at total cash costs for the business and people can play games of moving -- reallocating costs, those are [going]. So we are firmly focused on all-in sustaining cost and what is it truly costing us to get an ounce out of the ground and what are we selling it for and what does that mean for cash?

I like to think of the business in terms of not how many tonnes a day did we mine or how many tonnes a day did we mill or how many trucks did I have running around or what was their waiting time. I think of this business in how many dollars did we make today, and how do we do that consistently on a go-forward basis.

So we think that we are still an attractive valuation opportunity. There is lots of work underway. The teams are incredibly busy. But I would say that we've got good momentum at the moment and we're looking forward to trying to sort of continue that underlying performance improvement.

With that, I think we will probably go to questions. And if anybody has got any questions, I'm happy to take them.

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Questions and Answers

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Operator [1]

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

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Kerry Smith, Haywood Securities Inc., Research Division - VP & Senior Mining Analyst [2]

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Mick, can you just give me the sense for what the hedging strategy is on a go-forward basis here. You have no net debt now, and to me, it seems like probably you don't really need to do hedging any more. You've got a gold price that's working in your favor, and you're getting your cost down and you have no net debt. I'm just kind of wondering what we'll see in the back half of the year in terms of incremental hedges that might be added or if the plan is to not add any more?

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

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Yes, I think the plan is that at this stage, given that hedging is a risk mitigation tool and where we see the gold price and where we see our cost going, we think our book is -- gives us very good cover. We haven't formally taken a decision as to what other stuff we would do, but we're feeling pretty relaxed about the business at the moment, and so I think it's, again, gold price dependent, but I don't think we're going to look to add significantly to those gold price hedges. And I think the other thing that is, if you look at that slide, we used to hedge gold US dollar gold and Canadian dollar ForEx separately. We now hedge in Canadian dollar gold just to reduce that mismatch risk. But I think our book looks pretty good at the moment.

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Kerry Smith, Haywood Securities Inc., Research Division - VP & Senior Mining Analyst [4]

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Okay. And the recovery was significantly -- well, a point better in Q2, even on the lower head grade that you had versus Q1. Do you think that's a sustainable recovery curve or like has something happened in the mill in terms of the way you're managing it. Is it the fragmentation or is it just a function of better recoveries in the summer, generally?

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

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No, actually better recoveries during the colder months. So when you look at it, we actually had significantly better recoveries than we planned because normally, if you look historically, we get worse recoveries in the summer months when it's warmer. And -- so now look, it's a good result. I think we are definitely seeing a new normal, and it's really driven by -- there is not a one thing, there has been some capital projects in the mill that sort of reduced loaded carbon losses. I think the guys in the mill understands how to operate it better and then I think that the more uniform feed and a better -- a more uniform feed going into the mills, and therefore, which means you get a more uniform grind is definitely helping and the input-grade control work that is sort of getting better at predicting when they're going to get a slug of talc or some high copper or some high sulfur material, all of which have negative impacts on the recovery. So I can't stress too much the importance of this in-pit grade control work is -- we can blend that stuff out. And we say it very clearly, if you have a week where you get a slug of high-talc material go through, you can see it in the recoveries. So I do think that we are sort of seeing a new normal. But, we're a little bit reluctant to sort of all of a sudden turnaround and say, we're going to get a much higher recovery. I think the plan that's out in the marketplace assumes a 92.8% recovery in the next year or so. We're sort of there already.

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Kerry Smith, Haywood Securities Inc., Research Division - VP & Senior Mining Analyst [6]

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And just one last question, maybe Jaco has mentioned it, you hope you'll have an update on the contract renegotiations in Q3? Are you suggesting that you will sort of have something definitive done by then or it'll be just an update?

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Jaco Crouse, Detour Gold Corporation - CFO [7]

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I think at this point in time, Kerry. We are -- you know like Mick said, we are actively looking at the contracts, and obviously we are going after the larger ones first. So we hope in order to provide you guys with an update, I would say in Q3, but I would leave it at that for now.

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

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Yes, look, when you're renegotiating stuff, you can't predict an outcome. You can't prejudice what's your negotiation will be like. So all we can tell you is we've identified these things, we're on it, and as and when we have stuff to report, we'll come back to you.

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Operator [9]

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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 [10]

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I had a question on the block model reconciliation work that you're doing. Just wondering if you could provide a little bit more color on that in terms of the timing on some of the things that you're looking at and when you think you could come back with some results on that?

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Michael James W. McMullen, Detour Gold Corporation - President, CEO & Director [11]

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Well, it's not the immediate short term, mostly around the fact that we need to collect data. And so we need to do a lot more drilling in the pit. I guess our goal is to sort of drill out the next 3 to 5 years of the mine plan, which isn't going to be -- that's not a 1 month exercise. So I think it's a bit early to be able to tell you what that timing is like, but it's not in the next quarter, if that helps you.

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Carey MacRury, Canaccord Genuity Corp., Research Division - Analyst of Metals and Mining [12]

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And you're doing some core resampling what about -- when do you expect to look at that?

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Michael James W. McMullen, Detour Gold Corporation - President, CEO & Director [13]

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Well that's happening now. But again, I think it's like a -- it's a 120,000 meters of core that we're looking to resample. So again, it's not as you would exercise. So we may break it down into phases, and just -- and sort of say well, why don't we try and get [to these] with the data in front of us and then we can come out to the market with something which will be a smaller exercise. So I think all I can tell you, again, is we've highlighted it. We can tell you historically what we're seeing. We can tell you for the next 3 months or 4 months, we're seeing a similar sort of trend and that's led us to the decision to park some fleet up, but we do not have enough data to be able to make a decision and come back to the market and say that's a 5-year trend like a -- or 3-year trend, right. So I know you want answers tomorrow, but the reality is, I do not have that data to be able to make that determination.

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Carey MacRury, Canaccord Genuity Corp., Research Division - Analyst of Metals and Mining [14]

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Okay, fair enough. And just maybe on the mill, I mean you talked about 2 shut downs in the quarter, just wondering how many days that was and what you expect in terms of shutdowns in the back half of the year? And then you also mentioned tracking at 68,000 tonnes a day in July. I'm just wondering, given the improvements that you've made, and I know target is to get to 63,000 tonnes, how close are you to achieving that target?

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

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We're getting pretty close to that. The 2 shuts; one was a 5 day; one ended up, I think in a 6.5 day. So you can back calculate out of 90 or 91 days in the quarter, if we didn't have -- you can work out what our daily run rate was. I think it was 59,000 tonnes on average, if you take the 11.5, 12 days out of the month. I think we're at 68,000 tonnes or something a day when it was running. And so we've got a shut planned, just the 1 shut planned for the September quarter and there'll be 1 shut planned for the December quarter.

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Operator [16]

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[Operator Instruction] Our next question comes from Mike Parkin of National Bank Financial.

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Michael Parkin, National Bank Financial, Inc., Research Division - Mining Analyst [17]

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Just a couple of questions here. You mentioned you're kind of catching up on some maintenance work in the mill that you felt was kind of lacking and not done in the past. Could you give a bit more color on what some of those major items were?

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Michael James W. McMullen, Detour Gold Corporation - President, CEO & Director [18]

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Yes. Well, again, this isn't a new thing. So we had announced, well I think last year actually that over a bit of last year, this year, and into next year, there'd be between $30 million to $50 million worth of capital projects to be spent on the mill. That ranges everywhere from repairing pipework that had been corroded to -- well, a very good specific example is where we had loaded carbon that was in the -- the fine loaded carbon, you know loaded with goal that was just going out at the backend of the plant because the screens were not effective or the right screens and there was about $2 million spent on that. And I think they'd probably pay back on that with less than 6 months, I suspect. So it's fixing up a lack of historical sustaining CapEx and then fixing up a few design issues. And so we will spend probably towards the top end of that range, which is in our all-in sustaining numbers. But once that spends, then our sustaining CapEx in the plant will sort of go down a fair bit. And I think it's -- people when they walk around the plant can obviously see that there were things that were not right, and there's been a process underway to fix it, and we're seeing the results of that now. And that was an exercise that started last year.

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Michael Parkin, National Bank Financial, Inc., Research Division - Mining Analyst [19]

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On terms of the block model reconciliation work you're doing, that additional cost for the drilling, how will you run that? Will that go through OpEx? Will it be capitalized given that it potentially is more than the year or does it seems likely to impact more than a year?

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Jaco Crouse, Detour Gold Corporation - CFO [20]

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I think it will probably go through operating costs. I don't see like -- I think we'll assess it as we go along as well, whether we get a lasting benefit from it, but I think ultimately, that is an accounting allocation whether it's OpEx or CapEx. If we look at it from a cash flow point of view, obviously it will affect our straight away.

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

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Yes. And we are doing it now. What we are spending it, we'll probably step that spending up a little bit and I haven't quantified it, but that cost will be also part of our mining unit rate that we're seeing at the moment, but the return on that investment is huge. So just the fact that we actually have really good visibility on our short-term plan as to what's coming, the ability for us to then and actually accurately forecast what we're going to produce so that we actually are very confident in terms of our guidance, there is a big value in that for us. And then all the other stuff about blending and getting a more uniform feed to the mill and being able to slow mining down. So the RC -- impede RC grade control has been standard in Australia for 20 or 30 years. It's not particularly common in North America. It's because, as you point out, you have to spend the money upfront, right. But in this type of ore body, it is very beneficial.

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Michael Parkin, National Bank Financial, Inc., Research Division - Mining Analyst [22]

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And then, a new Moose Cree Chief got -- past management, it kind of commented on having some comments with this earnings. Have you had a chance, I know you're pretty busy, been in the seat just a few months. Have you had a chance to sit down with that person and kind of discuss the outlook for West Detour?

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

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Well, yes, there is a new chief, that's on the public record and we respect their sort of democratic processes and I think we look forward to really re-engaging with them and sort of, I guess, resetting the relationship a little bit and so I will be meeting in the not-too-distant-future with the new Chief and look forward to sort of trying to sort of get that relationship on a more even keel.

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Michael Parkin, National Bank Financial, Inc., Research Division - Mining Analyst [24]

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And some general thoughts or comments from you on West Detour, and Lowe Detour. How do you kind of look at the priorities of those projects relative to the big pit? Is it something that really interest you or is it something that's more, leave it for later?

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Michael James W. McMullen, Detour Gold Corporation - President, CEO & Director [25]

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Look, it's on our priority list. We are actually starting to look at the pre-feas for the Lower Detour. It's not -- given everything we got on the go, it's not front and center but it is definitely a part of the puzzle that we need to have a good look at. In terms of West Detour, now look, we want to continue to move that forward. Again, it's subject to lots of different discussions not only with our First Nations partners. So where we sit today is we have a team that's relatively small, highly motivated, lots of stuff to do and it's on our -- definitely on our list of things to do.

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Operator [26]

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

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

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Okay. Well look, thanks everybody for dialing in. I understand there is lots of other people reporting today and we look forward to reporting back at the end of the next quarter and providing an update on the progress of some of the things that we've talked about today. Thanks everyone.

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Operator [28]

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