Detour Gold poised to Shift Gears
Major changes are likely in store for Detour Gold Corporation in 2019 now that the company’s highly public boardroom battle is in its rearview mirror. The company is poised to shift gears, downsize the head office structure, and concentrate on retooling daily operations.
A confidential source with direct knowledge of DGC’s recent developments, told Mining Life that the company’s struggles are on the ground at its northern Ontario gold mine, not the corporate boardroom of Detour’s downtown Toronto offices, although the two are inter-connected.
“It boils down to management,” the source told Mining Life. “Right up until this big shareholder fight, the mine has been operated as if it is still under construction – still in the building phase. Well, it’s not.”
The source went on to suggest that cost-control measures are sub-standard. Specifically, the source identified the process plant as one of the primary elements of the operation that needs to be addressed.
“The problem is that you have an operation that is silo-driven. Each department is running its own little empire, making decisions that impact the company’s overall profitability. They haven’t made the transition from a building mentality to an operating one,” said the source.
All of that seems pale by comparison to the drama that unfolded in late 2018 as hedge fund manager John Paulson, the head of Paulson & Co. Inc., waged a battle to reshape DGC’s board.
In mid-December, Detour Gold Corp. interim CEO Michael Kenyon resigned following a vote that saw shareholders side with Paulson in an extended proxy war.
Five Paulson-nominated directors were approved, including two who had also been endorsed by Detour, as well as four others from a slate put forth by Detour.
“Today’s outcome represents a major victory for all of Detour’s shareholders,” Paulson said in a statement.
“We support Detour Gold’s new board of directors and believe that our investment is now in the capable hands of experienced, independent and professional directors,” he added.
Five previous Detour directors, including Kenyon, were removed as a result of the vote. James Gowans, a Detour pick, was appointed chairman of the board.
“With the distraction of the proxy contest now behind us, I welcome our new directors and look forward to working with them to recruit a new CEO and build value for all shareholders,” Gowans said in a statement.
As engaging as the boardroom drama might have been to investors and stock-watchers, the real issues are back at the mine.
“There’s an old boys club attitude up there,” said Mining Life’s source. “It’s slowly being phased out, and if the new board does what they need to do, they will find the right individuals to run the mine and get their costs back in line where they should be.”
The source goes on to say that the three distinct mine phases, building, operating, and closing, are not in proper focus. “When the right operating people are in place, individuals who understand how to break down those silos, then you will see a dramatic difference. It looks like that is going to be the new board’s priority, and a lot of stakeholders are going to appreciate that newfound stability.”
“Productivity is key,” the source added. “You have an environment where the building phase mentality still dominates. That needs to change.”
Detour Gold produced about 571,000 ounces of gold last year. Detour Gold Corp is the 100% owner of the Detour Gold Mine, one of Canada’s largest open pit gold operations, which is located north of Cochrane.
John Paulson, whose hedge fund Paulson & Co. owns 5.7 per cent of the company, complained about abysmal returns at the Toronto-based miner including a 70 per cent fall in market capitalization since July 2016.