Why Gerald Panneton, Founder of Detour Gold, Resigned
The news release announcing the resignation of Gerald Panneton from Detour Gold arrived on Sunday November 24th, a rather odd time for a mining company to issue a news release.
The timing of the news release immediately gave rise to the appearance that Panneton’s resignation was unplanned but rather sudden and impetuous. The news release rather than clarify what happened and why muddied the waters by not giving reasons for the rapid departure of the man who build up Detour Gold into Canada’s largest goldmine after many other companies including Placer Dome and Pelangio Gold had given up on the property.
Nor did Detour’s news release explain who initiated the resignation. Was it Gerald Panneton’s decision alone? Or did the steady downturn in Detour Gold’s financial picture lead the Board to ask for Panneton’s resignation?
The poorly handled resignation announcement of Gerald Panneton has created additional turmoil among its shareholders many of whom believed was Detour Gold Corp.
A quick survey of the business media gives some possible insight and explanation why Gerald Panneton resigned.
The Financial Post reported on Tuesday November 26 that the recent operational performance of Detour Gold might have something to do with Panneton’s Resignation based on comments by CEO Paul Martin, the man who replaces Panneton on an interim basis.
According to the Financial Post article, Panneton did a great job financing and building the Detour Lake mine, but the board was fed up with the company’s stock performance which peaked at $40 in 2011 and had shrunk by 80% in 2013 prior to Panneton’s resignation.
Yesterday’s announcement resulted in a further drop in value to $3.77 per share.
Mr. Panneton’s key mistake was permitting Detour Gold to slip into the red by over spending and over borrowing while the price of gold was falling in 2013. The expenditures occurred while Detour was about to ramp up its production.
The Financial Post article points to three transaction which negatively affected Detour Gold’s financial stability. In May, 2013 the company issued $176 million of stock to finance its ramp up. Preceeding that were two 2012 “bought deal financing” and a negotiated US$135 million credit facility.
Quoting Michael Parkin, an analyst with Desjardins Securities, the Financial Post reported that the current price of gold US$1,235 an ounce meant Detour would not be able to generate enough revenue to turn a profit. Parkin calculated a negative free cash flow of US$48.4-million in 2014, leaving Detour Gold US$6-million in the bank.
The Globe and Mail also attributed Panneton’s sudden departure to a need for a rapid improvement of Detour Golds balance sheet.
The Globe reported that abrupt departure of Mr. Panneton, occurred a day after he had a discussion with Detour Gold’s board of directors that resulted in him tendering his resignation, according to the company, Paul Martin would not provide any further details on the discussions that propelled Panneton to offer his resignation, nor did Martin explain why the Board so readily accepted the resignation of the chief architect of Detour Gold’s phenomenal rise to the top of the Canadian gold mining heap.
It’s clear however that the Board simply lost faith in the ability of Gerald Panneton to make the right financial decisions after all his strength was always his keen knowledge of mining and geology that enabled him to see potential of a discarded old mine in 2006 when others could not and to manage it to the point of production ramp up.
The official position of Detour Gold’s Board of Directors can best be summed up Martin’s statement that improving the way the mine is managed will restore the value of its stock.
As quoted in the Globe and Mail, Marin said:
“It would be fair to say that none of us are satisfied with the share performance. What we need to do is to deliver on our operating parameters to improve that situation.”
Backing up Martin’s optimistic statement were the comments reported in the Globe and Mail by Dan Rollings of RBC Capital Markets who said - “We expect the departure (of Panneton) could speed up initiatives to strengthen the balance sheet,”
Detour Lake gold mine located northeast of Cochrane, Ontario has the potential to be the largest gold mine in Canada estimated to produce 657,000 ounces of gold per year over the projected 20 year lifespan of the mine.
Martin, the interim CEO and the former Chief Financial Officer told the Globe and Mail that he was confident Detour Gold‘s production target of between 240,000 and 260,000 ounces of gold would be met without further reliance on additional financing.
The success of Detour Gold’s prospects in 2014 will depend on an increase in the price of gold.
According to the Globe and Mail Martin expects Detour Gold to generate positive cash flow in 2014 but to do this the price of gold which today sits at US$1,241.52 averages between US $1, 250 to US$1,300 an ounce. Recovery could be quicker if the price of gold reaches even higher.
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