Detour Gold Corp., the operator of the Detour Lake mine in Ontario, fell to its lowest in seven years after saying Gerald Panneton resigned as chief executive officer as it faces “near-term challenges.”
Chief Financial Officer Paul Martin will serve as interim CEO while Detour Gold searches for Panneton’s replacement, the Toronto-based company said in a statement today. The shares plunged as much as 33 percent in Toronto and closed 12 percent lower at C$3.77, its lowest since January 2007.
Detour Gold, whose biggest investor is hedge fund firm Paulson & Co., poured its first gold bar at Detour Lake in February. Its shares have slumped 85 percent this year amid a decline in gold prices and after the miner cut its production forecast in May and again earlier this month. The company is dealing with a slower-than-expected startup of ore output at the mine, Chairman Michael Kenyon said.
“Mine ramp-ups are challenging in any environment,” Kenyon today in a phone interview from London. “There always are little hiccups that people have to deal with.”
He declined to comment on the reasons for Panneton’s departure. Panneton, who began as CEO in 2006, couldn’t immediately be reached for comment.
The company said Nov. 7 its operating costs will fall on improved efficiency and raising the ore-processing rate to the design capacity of 55,000 tons a day.
Still, during September, the first month of Detour Lake’s full commercial operations, cash costs -- production costs excluding expenses such as exploration and waste-rock removal -- were $1,214 per ounce of gold. The average price of gold traded in London that month was $1,351 an ounce.
Gold for immediate delivery rose 0.4 percent to $1,249.18 at 9:25 p.m. in London. The metal will average $1,275 next year, according to the median of 27 analysts’ estimates compiled by Bloomberg.
The company’s “costs for 2014 based on its preliminary outlook make free cash-flow generation unlikely at $1,200 an ounce,” Anita Soni, a Toronto-based analyst at Credit Suisse Group AG, said today in a note. She downgraded Detour to hold from buy.
Detour Gold’s level of working capital is of “significant concern” given the current price of gold, Phil Russo, a Toronto-based analyst at Raymond James Ltd., said today in a phone interview. Kenyon declined to comment on the company’s working capital.
Detour Gold had $137 million in cash and near-cash items as of Sept. 30, according to data compiled by Bloomberg. Its free cash flow, or cash flow from operations minus capital spending, was a negative $44.9 million, the data show.
Martin, the interim CEO, said in a phone interview he may personally buy Detour Gold stock to signal his confidence in the company’s prospects.
“I’m evaluating it right now,” Martin said, declining to say how many shares he may buy.
Detour Lake, the company’s only mine, will produce 240,000 to 260,000 ounces of gold this year, Detour Gold said Nov. 7, down from a previous projection of 270,000 ounces.
Paulson holds an 11 percent stake in the company, according to data compiled by Bloomberg.