A trifecta of problems has been weighing on Canada's new issue market.
Not only is it summer, when financings typically slow down, but some of the world's biggest developed economies are facing fiscal crunches and investors are skittish.
In that environment, what do you do? You go for gold. Detour Gold.
On Thursday afternoon Detour Gold Corp. launched a $372-million bought deal of common shares, priced at $29.75, a 2.2 per cent discount to the stock's last trade. Although smaller deals have come to market this week, this was the first big deal to hit the tape in some time.
The timing couldn't be better. Gold is on a huge run and now sits at $1.587 (U.S.) per ounce amid fears about U.S. and European debt, and the company's Detour Lake project is also right on schedule. Looking back, the financing was well orchestrated. In June Detour hosted an analyst tour in northern Ontario to provide a glimpse of how well things are going. That gave analysts the opportunity to write some positive reviews, and those reports could be sent to clients as the banks tried to sell the deal today.
As of late June, Detour lake was 25 per cent complete, with big tasks such as power lines well under way. If everything stays on track, first production should come in the first quarter of 2013. In total the project is expected to cost $1.3-billion and as of June 13 the company had $815 committed toward capital expenditures.
If Detour can keep its production schedule on track, the speculation that the company will be taken out by a senior gold producer will only grow. The big firms have been looking to expand, and analyst Steve Parsons at Wellington West notes they are especially looking for "developed, de-risked ounces in lieu of developing their own greenfield projects that are substantially exposed to both capex creep and execution risk."
Detour Lake is expected to produce an average of 649,000 ounces of gold per year for 16 years, with total cash costs of $528 (U.S.) per ounce.
BMO Nesbitt Burns and TD Securities co-led the offering.