Q MANAGEMENT S DISCUSSION AND ANALYSIS

Transcription

1 Q MANAGEMENT S DISCUSSION AND ANALYSIS FOR THE QUARTER ENDED SEPTEMBER 30, 2018

2 MANAGEMENT S DISCUSSION AND ANALYSIS This Management s Discussion and Analysis ( MD&A ) of Detour Gold Corporation ( Detour Gold, we, our or the Company ) provides information that management believes is relevant to an assessment and understanding of the consolidated financial condition and results of operations of the Company. This MD&A should be read in conjunction with Detour Gold s unaudited condensed consolidated interim financial statements and related notes for the three and nine months ended September 30, 2018 and 2017 which are prepared in accordance with International Accounting Standard Interim Financial Reporting ( IAS 34 ) as issued by the International Accounting Standards Board ( IASB ). This MD&A contains certain forward-looking statements. Refer to the cautionary language at the end of this MD&A. All dollar figures stated herein are expressed in United States dollars, except for: (i) tabular amounts which are in millions of United States dollars; (ii) per share or per ounce amounts; or (iii) unless otherwise specified. This MD&A is dated October 24, The Company s public filings, can be viewed on the SEDAR website ( and on the Company s website ( Certain non-ifrs financial performance measures are included in this MD&A. Detour Gold believes that these measures, in addition to conventional measures prepared in accordance with IFRS, provide investors an improved ability to evaluate the underlying performance of the Company. These measures are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. These measures do not have any standardized meaning prescribed under IFRS, and therefore may not be comparable to other issuers. The non-ifrs financial performance measures included in this document are: total cash costs, all-in sustaining costs ( AISC ), average realized price, average realized margin, adjusted net earnings, and adjusted basic net earnings per share. Refer to the Non-IFRS Financial Performance Measures section for a reconciliation of these measures. In addition, included in this MD&A is the measure Earnings from mine operations. Refer to section Additional IFRS Financial Performance Measures for additional information on this measure. The following abbreviations are used throughout this document: USD or U.S. dollar (United States dollar), Cdn (Canadian dollar), AISC (All-in sustaining costs), Au (gold), oz (ounces), g/t (grams per tonne), Mt (million tonnes), km (kilometres), m (metres), TMA (tailings management area), tpd (tonnes per day), ROM (run-of-mine), and LOM (life of mine). 1

3 TABLE OF CONTENTS BUSINESS OVERVIEW... 3 THIRD QUARTER 2018 HIGHLIGHTS... 3 OUTLOOK... 4 CORPORATE DEVELOPMENTS... 4 EXPLORATION ACTIVITIES... 5 PERFORMANCE DRIVERS... 6 OPERATING RESULTS... 9 THIRD QUARTER 2018 FINANCIAL RESULTS YEAR-TO-DATE 2018 FINANCIAL RESULTS FINANCIAL CONDITION REVIEW LIQUIDITY AND CAPITAL RESOURCES COMMITMENTS OFF-BALANCE SHEET ARRANGEMENTS SUMMARY OF QUARTERLY FINANCIAL RESULTS NON-IFRS FINANCIAL PERFORMANCE MEASURES ADDITIONAL IFRS FINANCIAL PERFORMANCE MEASURES CRITICAL JUDGMENTS AND ACCOUNTING ESTIMATES SIGNIFICANT ACCOUNTING POLICIES INTERNAL CONTROLS OVER FINANCIAL REPORTING OUTSTANDING SHARES RISKS AND UNCERTAINTIES CAUTIONARY NOTE REGARDING FORWARD-LOOKING INFORMATION TECHNICAL INFORMATION

4 BUSINESS OVERVIEW Detour Gold was incorporated under the laws of Ontario in 2006 and was listed on the Toronto Stock Exchange (TSX:DGC) in January Detour Gold is a Canadian-based intermediate gold mining company with a 100% interest in the Detour Lake mine, a long-life, large-scale open pit operation located in northeastern Ontario, approximately 300 km northeast of Timmins and 185 km by road northeast of Cochrane. The Company continues to focus on improving the Detour Lake mine and on organic growth by exploring and developing its large Detour Lake property, which consists of a contiguous block of mining claims and leases totaling approximately 646 km 2 in the District of Cochrane. Our business plan is to be a leading intermediate gold producer. The Company s near-term strategy is to continue with operational improvements at the Detour Lake mining operation while applying cost and capital discipline. THIRD QUARTER 2018 HIGHLIGHTS Gold production of 151,402 ounces compared to 139,861 ounces in Q AISC (1) of $1,377 per ounce sold and total cash costs (1) of $798 per ounce sold compared to $1,032 and $668 per ounce sold, respectively, in Q Revenues of $170.0 million on gold sales of 139,821 ounces at an average realized price (1) of $1,214 per ounce compared to $164.0 million on gold sales of 124,498 ounces at an average realized price of $1,273 per ounce in Q Earnings from mine operations of $15.0 million compared to $46.7 million in Q Net earnings of $12.7 million ($0.07 per basic share) compared to net earnings of $41.1 million ($0.24 per basic share) in Q Adjusted net loss (1) of 1.5 million ($0.01 per basic share) compared to adjusted net earnings (1) of $27.1 million ($0.15 per basic share) in Q Cash and cash equivalents of $156.3 million at September 30, 2018 (December 31, $134.1 million) Revolving credit facility extended by one year from July 2021 to July Refer to the non-ifrs Financial Performance Measures section for a reconciliation of this metric. 3

5 OUTLOOK 2018 Guidance As a result of the Company's first nine-month operational results, Detour Gold expects to be within its 2018 guidance for gold production and AISC while TCC are expected to be at the high end or slightly above. For 2018, projected capital expenditures are to be slightly lower than guidance due to delayed spending and the weaker Canadian dollar. YTD Guidance Gold production (oz) 462, , ,000 Total cash costs ($/oz sold) $754 $700-$750 AISC ($/oz sold) $1,181 $1,200-$1,280 CORPORATE DEVELOPMENTS Senior Management and Director Changes On August 29, 2018, Alan Edwards, James Gowans and Judy Kirk joined the Board of Directors. To accommodate these additions, Ingrid Hibbard and Robert Doyle resigned from the Board. In addition, Dale Ekmark joined the Company as Vice President, Mine General Manager. Update on Operational Improvement Strategy The Company continues to advance on several key strategic operational improvements with the objective of facilitating the execution of the 2018 LOM plan over the near term. Progress in the third quarter included: Appointment of Mine General Manager Hired additional technically experienced senior site leaders Completed in-depth audit of process plant operations, maintenance and mining Continuing audit of contractor management and project management Commenced required mill capital projects Introduced a business improvement site-based division Ongoing organizational structure evaluation Progressed improvements in operating procedures Developed mine to mill interface business optimization process changes Operating systems skills training and support personnel planning Revolver Extension On September 5, 2018, the Company amended its $300.0 million Revolving Credit Facility to extend the maturity date by one year from July 2021 to July Refer to the Liquidity and Capital Resources section for additional details. Special Meeting The Special Meeting of Shareholders is scheduled for December 11, 2018 in Toronto, Ontario. The record date is November 9, Technical Report The Company expects to file a NI Technical Report by end of November for the 2018 LOM Plan. 4

6 EXPLORATION ACTIVITIES Detour Gold has a 100% interest in the 646 km 2 Detour Lake property located on the northernmost Abitibi greenstone belt in northern Ontario. With the Detour Lake mine in operation since early 2013, the Company s exploration activities have focused on evaluating the exploration potential of its large Detour Lake property and developing a multi-year exploration plan with the main objective of finding high-grade satellite gold deposits within trucking distance of its large processing plant. The Company has also looked at grassroots opportunities in proximity to its main asset for future organic growth, which resulted in the staking in 2016 of the 532 km 2 Burntbush property located 70 km south of the Detour Lake mine Exploration Program The 2018 drilling program on the Detour Lake property was completed in October 2018 with a total of 20,900 m in 60 drill holes, testing targets in the Lower Detour area (including the Hopper Lake area) and east of the tailings facility. From this drilling campaign, 10,932 m in 30 holes were completed during the third quarter and up to the first week of October. A geological mapping program and ground geophysical surveys started in the third quarter on the Burntbush property. 5

7 PERFORMANCE DRIVERS The Company s key internal performance drivers are production volumes and costs which are disclosed in the sections Operating Results and Third Quarter 2018 and First Nine Months 2018 Financial Results. The key external performance drivers are the price of gold and foreign exchange rates. Gold price The price of gold is the most significant external financial factor affecting the Company s profitability and cash flow from operations. Therefore, the financial performance of the Company is expected to be closely linked to the price of gold. The price of gold is subject to volatile fluctuations over short periods of time and is affected by numerous industry and macroeconomic factors. During the third quarter of 2018, the gold price traded in a range of $1,178 to $1,262 per ounce (based on the London Bullion Market Association PM Auction). The average market price for the third quarter was $1,213 per ounce, a 5% decrease compared to the average market price of $1,278 per ounce for the third quarter of 2017 and a 7% decrease compared to the average market price of $1,306 per ounce for the second quarter of The gold price trended lower in the third quarter of 2018 from its closing price of $1,250 per ounce at June 30, 2018 as the U.S. Federal Reserve signaled the continuation of benchmark interest rate hikes in response to strong domestic economic indicators and labour markets. Further, the broad U.S. dollar index remained strong as a reflection of increased safe haven demand due to trade war tensions and tenuous growth in other G10 economies. As a result, the U.S. dollar appreciated against most other major currencies, including gold. The Company periodically uses forward and option contracts as part of its gold sales risk management program. During the first nine months of 2018 and as at September 30, 2018, the Company had no contracts in place and therefore had full exposure to the gold price. 6

8 Foreign exchange rates The Company s functional and reporting currency is the U.S. dollar. A significant portion of the operating and capital costs at the Detour Lake mine, as well as the corporate administration, taxes, and exploration and evaluation costs, are denominated in Canadian dollars. Consequently, the Company s operating results and cash flows are influenced by changes in the Canadian dollar against the U.S. dollar exchange rate. The average Canadian dollar exchange rate weakened by 4% during the third quarter of 2018 compared to the third quarter of While both the Bank of Canada and the U.S. Federal Reserve increased benchmark interest rates since the third quarter of 2017, expectations are that future rate hikes by the U.S. Federal Reserve will outpace those of the Bank of Canada. In addition, continued U.S. protectionism and uncertainty with respect to NAFTA, and an increased divergence in the market price of domestically produced oil relative to WTI in the third quarter of 2018 resulted in a relative weakening of the Canadian dollar over the period. A weaker Canadian dollar decreases costs in U.S. dollar terms as the Company estimates that approximately 75% of its operating and capital expenditures in 2018 are denominated in Canadian dollars. The Company has a foreign exchange risk management program whereby it can use derivative instruments to hedge a portion of its Canadian dollar expenditures to reduce exchange rate risk. As at September 30, 2018, the Company had $108.0 million of zero-cost collars to hedge its 2018 and 2019 Canadian denominated costs whereby it can sell U.S. dollars at an average rate of 1.25 and can participate up to an average rate of During the third quarter of 2018, the Company did not realize a gain or loss on its foreign exchange risk management program. Refer to section Liquidity and Capital Resources Derivative Instruments for details on the foreign exchange derivatives settled during the third quarter of 2018 and outstanding at September 30,

9 KEY OPERATING AND FINANCIAL STATISTICS The key operating and financial data for the periods are as follows: In millions of U.S. dollars, except where noted Three months ended September 30 Nine months ended September Operating data Ore mined Mt Waste mined Mt Total mined Mt Strip ratio waste:ore Mining rate 000s tpd Ore milled Mt Head grade g/t Au Recovery % Mill throughput tpd 59,219 61,548 55,332 59,992 Gold ounces produced oz 151, , , ,417 Gold ounces sold 1 oz 139, , , ,681 Financial data Metal sales 1 $ Earnings from mine operations $ Net earnings $ Per share basic $/share diluted $/share Adjusted net earnings (loss) 2 $ (1.5) Per share basic 2 $/share (0.01) Total assets $ 2, , , ,730.9 Long-term debt 3 $ Average realized price 2 $/oz 1,214 1,273 1,285 1,248 Total cash costs 2 $/oz Average realized margin 2 $/oz AISC 2 $/oz 1,377 1,032 1,181 1,092 1 Gold ounces sold are net of 2% royalty ounces payable in-kind. 2 Refer to the non-ifrs Financial Performance Measures section for a reconciliation of these amounts. 3 Long-term debt at September 30, 2018 represents the Credit Facility with a face value of $250.0 million. 8

10 OPERATING RESULTS Gold production The Detour Lake mine produced 151,402 ounces of gold in the third quarter of 2018, an increase of 8% compared to 139,861 ounces of gold in the prior year period. The increase in gold production reflected higher head grades partially offset by lower plant throughput. Mining The Company mined a total of 28.0 Mt of ore and waste (equivalent to approximately 304,000 tpd) in the third quarter of 2018, an increase of 7% from the prior year period and representing the most tonnes mined in a quarter since commencement of operations. The progress during the quarter highlights improving maintenance and operating practices. At the end of the third quarter, ROM stockpiles decreased to 5.8 Mt grading 0.62 g/t (approximately 115,000 ounces). Milling During the third quarter of 2018, the mill processed 5.4 Mt of ore (equivalent to 59,219 tpd), a decrease of 4% compared to the third quarter of 2017 (5.7 Mt of ore processed or 61,548 tpd). Head grade averaged 0.97 g/t for the quarter compared to 0.86 g/t in the third quarter of Mill recoveries averaged 89.3% for the third quarter of 2018, compared to 89.6% the third quarter of Improvements to plant reliability and operating time are being addressed by the ongoing capital projects and by modifications to maintenance and operating practices. Q Q Q Q Q Ore mined Mt Waste mined Mt Total mined Mt Strip ratio waste:ore Mining rate 000s tpd Ore milled Mt Head grade g/t Au Recovery % Mill throughput tpd 59,219 55,825 50,860 54,144 61,548 Ounces produced oz 151, , , , ,861 Ounces sold oz 139, , , , ,498 9

11 THIRD QUARTER 2018 FINANCIAL RESULTS Factors Affecting Third Quarter Net Earnings Millions of U.S. dollars Metal sales Metal sales for the third quarter of 2018 were $170.0 million compared to $164.0 million in the prior year period, reflecting a higher volume of gold sales, partially offset by a lower average realized price. Gold sales during the third quarter of 2018 amounted to 139,821 ounces, an increase of 9% compared to 128,498 ounces in the prior year period and is attributable to higher gold production as described in the previous section. The average realized price for the third quarter of 2018 was $1,214 per ounce, a decrease of $59 per ounce relative to the prior year period, reflecting a lower average market price for gold. Cost of sales Cost of sales for the third quarter of 2018 was $155.0 million compared to $117.3 million in the third quarter of This balance is comprised of production costs and depreciation. Production costs include costs associated with mining, processing, refining, site administration, and agreements with Aboriginal communities. Production costs during the third quarter of 2018 were $112.2 million compared to $86.8 million in the third quarter of The higher production costs reflect more gold ounces sold, as well as higher contractor and maintenance costs, and higher consumable costs (i.e. diesel fuel, plant reagents and electricity). Depreciation during the third quarter of 2018 was $42.8 million compared to $30.5 million in the third quarter of The higher depreciation charge for the quarter is due to a revision of the estimated useful life of certain of the Company s assets reflected in 2018 LOM Plan. Total cash costs for the third quarter of 2018 were $798 per ounce sold, an increase of 19% or $130 per ounce sold from the third quarter of 2017 of $668 per ounce sold, consistent with the increase in production costs described above. AISC for the third quarter of 2018 totaled $1,377 per ounce sold compared to $1,032 per ounce sold in the third quarter of The increase of $345 per ounce sold is primarily attributable to the increase in total cash costs, as described 10

12 above, and higher sustaining capital expenditures, including deferred stripping costs incurred in the third quarter of Sustaining capital expenditures in the third quarter of 2018 amounted to $74.8 million or $535 per ounce sold (including $21.8 million of deferred stripping) compared to $45.6 million or $355 per ounce sold (including $6.3 million of deferred stripping) in the prior year period. Sustaining capital expenditures in the third quarter of 2018 included $26.9 million for the ongoing construction of the tailings facility, $16.5 million for mining (mainly for major component replacements for the mobile fleet and two excavators), $5.1 million for processing plant, and $4.5 million for site infrastructure, mainly for the new accommodation camp. Corporate administration expense Corporate administration expense was $6.6 million in the third quarter of 2018 compared to $5.4 million in the prior year period. Included in this amount is $1.9 million of share-based compensation expense compared to $0.8 million in the third quarter of The increase in share-based compensation expense reflects a change in timing of certain long-term incentive plan grants, as well as the issuance of deferred share units to the newly appointed directors of the Company in the third quarter of Exploration and evaluation expense Exploration and evaluation expense was $1.8 million in the third quarter of 2018 compared to $1.7 million for the prior year period, mainly reflecting drilling programs on the Detour Lake property. Refer to section Exploration Program for additional details. Net finance cost Interest expense and bank charges During the third quarter of 2018, the Company recorded interest expense and bank charges of $3.3 million compared to $7.4 million in the prior year period. The decrease is due to lower levels of debt outstanding at a lower interest rate. During the third quarter of 2018, the Company had drawn an average of $250.0 million on its credit facility compared to $320.5 million on its Convertible Notes in the prior year period. Unrealized and realized gain/loss on derivative instruments During the third quarter of 2018, the Company did not realize a gain or loss on its financial risk management program (third quarter $5.1 million net gain) and recorded an unrealized net gain of $1.1 million on its derivative positions at September 30, 2018 (third quarter $0.4 million net loss). Details on the Company s derivative positions at September 30, 2018 are included in the Liquidity and Capital Resources Derivative Instruments section. Income and mining tax During the third quarter of 2018, an income and mining tax recovery of $6.7 million was recognized (third quarter of $8.6 million recovery). The non-cash deferred tax recovery recognized is primarily due to foreign exchange translation of non-monetary assets resulting from a stronger Canadian dollar since the second quarter of The Company s functional currency for financial reporting purposes differs from its tax filing currency. As a result, the tax basis of non-monetary assets and liabilities that are denominated in a currency other than the U.S. dollar are subject to re-measurement for changes in currency exchange rates at each reporting period. Net earnings Net earnings for the third quarter of 2018 were $12.7 million, or $0.07 per basic share, compared to net earnings of $41.1 million, or $0.24 per basic share in the third quarter of The decrease primarily reflects lower earnings from mine operations of $31.7 million, partially offset by lower net finance costs of $5.7 million. 11

13 Q Earnings before taxes Unrealized loss on derivatives Foreign exchange loss Adjusted income and mining tax expense Q Adjusted Net Loss Adjusted net loss Adjusted net loss for the third quarter of 2018 amounted to $1.5 million, or $0.01 per basic share, a decrease from adjusted net earnings of $27.1 million or $0.15 per basic share from the prior year period, primarily due to the decrease in earnings from mine operations. Reconciliation of Third Quarter 2018 Adjusted Net Earnings (Loss) Millions of U.S. dollars (1) (2) (5) (2) (10) Net earnings were adjusted to exclude specific items that are significant, and not reflective of the underlying operations of the Company, including: the impact of foreign exchange gains and losses, unrealized and non-cash fair value gains and losses of financial instruments, accretion on long-term debt, impairment provisions and reversals thereof, and other non-recurring items. The tax effect of adjustments, as well as the impact of foreign exchange translation on nonmonetary assets related to deferred taxes, is presented in the income and mining tax adjustments line. Adjusting for these items provides an additional measure to evaluate the underlying operating performance of the Company as a whole for the reporting periods presented. The Company revised this measure during the first quarter of 2018 and included a reconciliation of the current and comparative periods in the section Non-IFRS Financial Performance Measures. 12

14 YEAR-TO-DATE 2018 FINANCIAL RESULTS Factors Affecting First Nine Months Net Earnings Millions of U.S. dollars Metal sales Metal sales for the first nine months of 2018 were $563.2 million compared to $507.8 million in the prior year period, reflecting higher gold sales volumes and a higher average realized gold price. Gold sales during the first nine months of 2018 amounted to 437,737 ounces, an increase of 8% compared to 405,681 ounces in the prior year period and is attributable to higher gold production as described in the Operating Results section. The average realized price for the first nine months of 2018 was $1,285 per ounce, an increase of $37 per ounce relative to the prior year period, reflecting a higher average market price for gold. Cost of sales Cost of sales for the first nine months of 2018 was $450.7 million compared to $396.3 million in the first nine months of Cost of sales is comprised of production costs and depreciation. Production costs include costs associated with mining, processing, refining, site administration, and agreements with Aboriginal communities. Production costs during the first nine months of 2018 were $331.8 million compared to $295.0 million in the first nine months of The increase is primarily due to higher mining costs associated with increased tonnage mined, including higher diesel fuel costs, and unplanned shovel repairs during the first half of the year. Additionally, incurred contractor ore crushing costs due to low availability of the primary crusher during the first half of the year. Depreciation during the first nine months of 2018 was $118.9 million, compared to $101.3 million in the first nine months of 2017, a result of higher volume of gold sales as well as updates to the useful life estimates of assets. Total cash costs for the first nine months of 2018 were $754 per ounce sold, an increase of 5% or $33 per ounce sold from the first nine months of 2017 of $721 per ounce sold. The increase is consistent with the increase in production costs described above. 13

15 AISC for the first nine months of 2018 totaled $1,181 per ounce sold compared to $1,092 per ounce sold in the first nine months of The increase of $89 per ounce sold is primarily attributable to higher total cash costs per ounce sold as described above and higher sustaining capital expenditures per ounce in the first nine months of Sustaining capital expenditures in the first nine months of 2018 amounted to $166.3 million or $380 per ounce sold (including $36.5 million of deferred stripping) compared to $134.2 million or $331 per ounce sold (including $18.3 million of deferred stripping) in the prior year period. Sustaining capital expenditures in the first nine months of 2018 included $61.6 million for mining (mainly for payments for haul truck and shovel purchases and major component replacements for the mobile fleet), $47.1 million for the ongoing construction of the tailings facility, $9.5 million for processing plant, and $11.6 million for site infrastructure, mainly for the new accommodation camp. Corporate administration expense Corporate administration expense was $19.5 million in the first nine months of 2018 compared to $17.9 million in the prior year period. During the first nine months of 2018, the Company incurred severance charges related to changes in senior management. Included in the corporate administration balance is $2.3 million of share-based compensation expense compared to $3.4 million in the first nine months of The decrease reflects the impact of the Company s lower share price affecting the valuation of the restricted, performance and deferred share unit plans. Exploration and evaluation expense Exploration and evaluation expense was $4.4 million in the first nine months of 2018 compared to $5.6 million for the prior year period, mainly reflecting less drilling activity on the Detour Lake property. Refer to section Exploration Program for additional details. Net finance cost Interest expense and bank charges During the first nine months of 2018, the Company recorded interest expense and bank charges of $9.3 million compared to $17.4 million in the prior year period. The decrease is due to lower levels of debt outstanding at a lower interest rate. During the first nine months of 2018, the Company had drawn an average of $259.0 million on its credit facility compared to $335.8 million on its Convertible Notes in the prior year period. Unrealized and realized gain/loss on derivative instruments During the first nine months of 2018, the Company realized a loss of $0.1 million on its financial risk management program (first nine months $4.4 million net gain) and an unrealized net loss of $1.7 million on its derivative positions at September 30, 2018 (first nine months $1.5 million net gain). Details on the Company s derivative positions at September 30, 2018 are included in the Liquidity and Capital Resources Derivative Instruments section. Income and mining tax During the first nine months of 2018, an income and mining tax expense of $43.6 million was recognized (first nine months of $12.2 million recovery). The non-cash deferred tax expense recognized is primarily due to utilization of accelerated discretionary tax deductions and foreign exchange translation of non-monetary assets resulting from a weakened Canadian dollar since year-end. The Company s functional currency for financial reporting purposes differs from its tax filing currency. As a result, the tax basis of non-monetary assets and liabilities that are denominated in a currency other than the U.S. dollar are subject to re-measurement for changes in currency exchange rates at each reporting period.. 14

16 Net earnings Net earnings for the first nine months of 2018 were $31.4 million, or $0.18 per basic share, compared to net earnings of $71.6 million, or $0.41 per basic share in the first nine months of The decrease primarily reflects a $55.8 million increase in deferred taxes, partially offset by lower net finance costs of $14.7 million. Adjusted net earnings Adjusted net earnings for the first nine months of 2018 amounted to $48.0 million, or $0.27 per basic share, inline with adjusted net earnings of $48.3 million or $0.27 per basic share from the prior year period, as an increase in deferred taxes was offset by an increase in earnings from mine operations. Reconciliation of First Nine Months 2018 Adjusted Net Earnings Millions of U.S. dollars Net earnings were adjusted to exclude specific items that are significant, and not reflective of the underlying operations of the Company, including: the impact of foreign exchange gains and losses, unrealized and non-cash fair value gains and losses of financial instruments, accretion on long-term debt, impairment provisions and reversals thereof, and other non-recurring items. The tax effect of adjustments, as well as the impact of foreign exchange translation on nonmonetary assets related to deferred taxes, is presented in the income and mining tax adjustments line. Adjusting for these items provides an additional measure to evaluate the underlying operating performance of the Company as a whole for the reporting periods presented. The Company revised this measure during the first quarter of 2018 and included a reconciliation of the current and comparative periods in the section Non-IFRS Financial Performance Measures. 15

17 FINANCIAL CONDITION REVIEW In millions of dollars September December Cash and cash equivalents $ $ Receivables and other assets Current and long-term inventories Other Property, plant and equipment 2, ,122.6 Total assets $ 2,498.7 $ 2,417.5 Trade and other payables $ 93.1 $ 70.6 Long-term debt Other liabilities Deferred tax liability Total liabilities $ $ Total equity $ 1,993.1 $ 1,957.1 Total assets were $2.5 billion at September 30, 2018, an increase of $81.2 million compared to December 31, The Company s asset base is primarily comprised of non-current assets, property, plant and equipment, reflecting the capital intensive nature of mining. The net increase in total assets primarily reflects an increase capital expenditures, inventories and cash and cash equivalents. At September 30, 2018, inventories included $30.3 million of stockpiled ore (December 31, $36.7 million), $48.6 million of gold in-circuit (December 31, $27.2 million), $16.9 million of finished metal inventory (December 31, $12.9 million), and $40.3 million of materials and supplies (December 31, $37.5 million). Receivables and other assets were primarily related to Harmonized Sales Tax (HST) refunds. At any period end, the Company expects to have one or two months of HST refunds outstanding. The Company does not carry any trade receivables. Property, plant and equipment increased by net $34.6 million during the first nine months of Additions to property, plant and equipment, including deferred stripping, amounted to $174.8 million, mainly attributable to the expansion of the mobile fleet and construction costs associated with the tailings facility. This balance was partially offset by $138.3 million of depreciation and $1.9 million of net disposals and other changes. The Company s primary contractual obligations consist of debt and trade and other payables. The Company s debt at September 30, 2018 consists of its Credit Facility, of which $250.0 million was drawn at September 30, In addition, the Company has used the Credit Facility to issue $30.3 million of letters of credit. Refer to section Liquidity and capital resources for additional details. Trade and other payables increased to $93.1 million at September 30, 2018 from $70.6 million at December 31, 2017, due to the timing of payments. The Company expects this balance to return to levels consistent with prior quarters during the fourth quarter of The Company s decommissioning and restoration provisions are included within Other liabilities in the table above. Significant restoration and rehabilitation activities include land rehabilitation, demolition of buildings and mine facilities, ongoing care and maintenance and other costs. At September 30, 2018, the provision was $33.4 million compared to $35.0 million at December 31, The decrease was primarily related to the impact of foreign exchange fluctuations in the valuation of the liability. 16

18 The Company s derivatives are included in Other assets and Other liabilities in the table above. The movement in these balances is due to the change in value of open contracts and market rates at period end. A summary of the derivative positions and settlements during the quarter are included in section Liquidity and Capital Resources Derivative Instruments for details on the Company s derivative activities. The Company recognized deferred tax liabilities of $129.9 million in respect of income and mining taxes, an increase of $43.6 million from December 31, The deferred tax expense recognized is primarily due to utilization of accelerated discretionary tax deductions and foreign exchange translation of non-monetary assets from a weakened Canadian dollar since year-end. Total shareholders equity was $2.0 billion at September 30, 2018, an increase of $36.0 million compared to December 31, 2017, primarily due to net earnings of $31.4 million for the first nine months of

19 LIQUIDITY AND CAPITAL RESOURCES The Company manages liquidity risk by monitoring actual and projected cash flows and matching the maturity profile of financial assets and liabilities. Cash flow forecasting is performed regularly. The Company monitors forecasts of the Company s liquidity in the form of cash and cash equivalents and requirements to ensure it has sufficient cash to meet operational needs while maintaining additional liquidity on its Credit Facility. Forecasting takes into consideration the Company s debt servicing requirements, covenant compliance and internal liquidity targets. In addition, factors that can impact the Company s liquidity are monitored regularly and include assumptions of gold market prices, foreign exchange rates, production levels, operating costs and capital costs. Contractual obligations and other commitments that could impact the Company s liquidity are detailed in the Commitments section of this document. Liquidity and capital resources The Company uses a mix of cash, debt and shareholders equity to maintain an efficient capital structure and ensure adequate liquidity exists to meet the needs of the operations and the Company. As at September 30, 2018, the Company had cash and cash equivalents of $156.3 million compared to $134.1 million at December 31, The funds are maintained in interest bearing accounts at select Canadian chartered banks. The Company has a $500.0 million Credit Facility that comprises a $300.0 million Revolving Credit Facility and $200.0 Term Loan. The Revolving Credit Facility matures in July 2022 and the Term Loan in July On September 5, 2018, the Company amended its Revolving Credit Facility to extend the maturity date by one year from July 2021 to July As at September 30, 2018, the Company had drawn $200.0 million of the term loan and $50.0 million of the Revolving Credit Facility. In addition, the Company has used the Credit Facility to issue $30.3 million of letters of credit. At September 30, 2018, the Company had undrawn capacity of approximately $219.7 million. The Credit Facility bears an interest rate of Libor plus 2.125% to 3.125% on drawn amounts and 0.48% to 0.70% on undrawn amounts, based on the Company s leverage ratio, as defined in the agreement. The Credit Facility is secured against all assets of the Company and contains covenants customary for a loan facility of this nature, including limits on indebtedness, asset sales and liens. It contains financial covenant tests that include (a) a minimum interest coverage ratio of 3.5:1:0, and (b) a maximum leverage ratio of 3.5:1.0. The Company is in compliance with all the Credit Facility covenants as at September 30, In the first nine months of 2018, the Company made discretionary repayments of $20.0 million on its Revolving Credit Facility. The long-term debt repayment profile at September 30, 2018 is as follows: In millions of dollars Thereafter Repayment of term loan $ - $ - $ $ - $ - $ - Repayment of revolving credit facility Interest on the credit facility Total $ 3.3 $ 13.3 $ $ 3.9 $ 52.4 $ - In the current gold price environment, the Company considers its liquidity and capital resources together with the expected cash flows from operations to be sufficient to support the Company s normal operating requirements for the foreseeable future. 18

20 Cash flows Three months ended September 30 Nine months ended September 30 In millions of dollars Cash flow from operating activities $ 81.8 $ 61.3 $ $ Cash flow used in investing activities (74.5) (45.5) (164.9) (130.9) Cash flow used in financing activities (1.7) (31.3) (25.7) (78.6) Effect of foreign exchange rates on cash (2.7) 3.0 Net increase (decrease) in cash 6.0 (14.5) 22.2 (15.7) Cash and cash equivalents, beginning of period Cash and cash equivalents, end of period $ $ $ $ Cash flow from operating activities The Company generated $81.8 million and $215.5 million of operating cash flow during three and nine months ended September 30, 2018 compared to $61.3 and $190.8 million in the prior year periods. During the third quarter of 2018, operating cash flow increased primarily as a result of a build-up of working capital related to accounts payable and gold in-circuit inventories. Relative to prior year periods, net working capital outflows decreased by $45.3 million and $11.6 million, for the three and nine months ended September 30, Cash flow used in investing activities Cash used in investing activities amounted to $74.5 million and $164.9 million for the three and nine months ended September 30, 2018 compared to $45.5 million and $130.9 million in Cash used in investing activities is primarily for sustaining capital expenditures at the Detour Lake mine. The spend in the first nine months of 2018 was primarily related to the planned expansion of the mobile fleet, including the acquisition of haul trucks and shovel and auxiliary equipment, tailings construction activities, and new accommodation camp. Included in sustaining capital expenditures is $21.8 million and $36.5 million of deferred stripping for the three and nine months ended September 30, 2018 compared to $6.3 and $18.3 million in the prior year period. Cash flow used in financing activities Net cash used in financing during the third quarter of 2018 amounted to $1.7 million compared to $31.3 million in the prior year period. The decrease primarily relates to a reduction of debt by $29.3 million in the prior year period, while debt levels have remained unchanged during the third quarter of Net cash used in financing for the first nine months of 2018 amounted to $25.7 million compared to $78.6 million in the prior year. The lower cash outflows reflected lower debt repayments in the first nine months of 2018 of $20.0 million compared to $38.1 million in the prior year period. 19

21 Derivative instruments Fair values of derivative instruments Balance sheet September 30 December 31 In millions of dollars classification Currency contracts Derivative assets $ 0.6 $ 2.5 Currency contracts Derivative liabilities $ (0.4) $ (0.8) Total derivative assets $ 0.6 $ 2.5 Total derivative liabilities $ (0.4) $ (0.8) All derivatives outstanding as at September 30, 2018 and December 31, 2017 mature or expire within one year from the period end date. As at September 30, 2018, the Company had $108.0 million of zero-cost foreign exchange collars to hedge its Canadian dollar denominated costs whereby it can sell U.S. dollars at an average rate of 1.25 and can participate up to an average rate of As at September 30, 2018, the Company had no gold or diesel derivative contracts outstanding. (Gains) losses on derivative instruments Three months ended Nine months ended September 30 September 30 In millions of dollars Unrealized (gain) loss Gold contracts $ - $ 0.8 $ - $ 0.1 Currency contracts (1.1) (2.1) Diesel contracts - (0.7) Total $ (1.1) $ 0.4 $ 1.7 $ (1.5) Realized (gain) loss Gold contracts $ - $ 0.1 $ - $ 0.1 Currency contracts - (5.0) 0.1 (4.0) Diesel contracts - (0.2) - (0.5) Total $ - $ (5.1) $ 0.1 $ (4.4) Total unrealized and realized (gain) loss on derivative instruments $ (1.1) $ (4.7) $ 1.8 $ (5.9) Sensitivities The Company enters into foreign exchange collars relating to the portion of the future operating expenses incurred in Canadian dollars. With all other variables held constant, a 10% increase or decrease of the U.S. dollar against the Canadian dollar at September 30, 2018 would have affected the Company s net earnings and comprehensive earnings by negative $6.3 million and positive $8.4 million, respectively. 20

22 COMMITMENTS Purchase commitments As at September 30, 2018, total purchase commitments for capital expenditures for the Detour Lake mine amounted to $21.2 million (December 31, $30.2 million). Operating leases The Company has operating lease agreements involving office space and equipment. Future minimum lease payments required to meet obligations that have initial or remaining non-cancelable lease terms are $0.2 million in 2018, $0.7 million each year from 2019 to 2020, and $0.1 million thereafter. Detour Lake mine royalty Production from the Detour Lake mine is subject to a 2% net smelter royalty payable to Franco-Nevada Canada Holdings Corp. ( FN ). FN has the right to elect, on a yearly basis, to have the royalty paid in cash or in-kind. FN has elected to receive the royalty paid in-kind. For the three and nine months ended September 30, 2018, the Company accrued or paid in-kind 2,887 and 8,743 ounces of gold (three and nine months ended September 30, ,323 and 7,956 ounces of gold). Mine site closure obligations The Company has issued $15.6 million (Cdn$20.1 million) of surety bonds, and a letter of credit for $21.9 million (Cdn$28.3 million) under the Credit Facility in favour of the Ministry of Northern Development and Mines in support of the closure plan of the Detour Lake mine as at September 30, OFF-BALANCE SHEET ARRANGEMENTS The Company does not have any off-balance sheet arrangements. 21

23 SUMMARY OF QUARTERLY FINANCIAL RESULTS In millions of dollars, except per share and ounce amounts Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Gold ounces produced 151, , , , , , , ,512 Gold ounces sold 1 139, , , , , , ,668 Metal sales 1 $ $ $ $ $ $ $ $ Cost of sales Production costs Depreciation and depletion Total cost of sales Earnings from mine operations Expenses Net finance cost (income) (2.9) Income and mining tax recovery Expense (recovery) (6.7) (8.6) (1.4) (2.2) 16.8 Net earnings (loss) $ 12.7 $ 8.8 $ 9.9 $ 16.7 $ 41.1 $ 24.5 $ 6.0 $ (13.5) Earnings (loss) per share (58,748) Basic $ 0.07 $ 0.05 $ 0.06 $ 0.10 $ 0.24 $ 0.14 $ 0.03 $ (0.08) Diluted ( $ 0.07 $ (0.18) 0.05 $ 0.06 $ 0.10 $ 0.23 $ 0.14 $ 0.03 $ (0.08) ( (0.18) 1 Gold ounces sold are net of 2% royalty in kind ounces. Refer to section Commitments Detour Lake mine royalty. 2 Includes corporate administration, exploration and evaluation expenses and other operating (income) expenses. 22

24 NON-IFRS FINANCIAL PERFORMANCE MEASURES The Company has included certain non-ifrs measures in this document. The Company believes that these measures, in addition to conventional measures prepared in accordance with IFRS, provide investors an improved ability to evaluate the underlying performance of the Company. The non-ifrs measures are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. These measures do not have any standardized meaning prescribed under IFRS, and therefore may not be comparable to other issuers. Total cash costs Total cash costs is a common financial performance measure in the gold mining industry but with no standard meaning under IFRS. Detour Gold reports total cash costs on a sales basis. The Company believes that, in addition to conventional measures prepared in accordance with IFRS, such as sales, certain investors use this information to evaluate the Company s performance and ability to generate operating earnings and cash flow from its mining operations. Management uses this metric as an important tool to monitor operating cost performance. Total cash costs include production costs such as mining, processing, refining and site administration, agreements with Aboriginal communities, less share-based compensation and net of silver sales divided by gold ounces sold to arrive at total cash costs per gold ounce sold. The measure also includes other mine related costs incurred such as mine standby costs and current inventory write downs. Production costs are exclusive of depreciation. Production costs include the costs associated with providing the royalty in-kind ounces. Other companies may calculate this measure differently. All-in sustaining costs The Company believes that AISC more fully defines the total costs associated with producing gold. The Company calculates AISC as the sum of total cash costs (as described above), share-based compensation, corporate general and administrative expense, exploration and evaluation expenditures that are sustaining in nature, reclamation cost accretion, sustaining capital including deferred stripping, and realized gains and losses on hedges due to operating and capital costs, all divided by the gold ounces sold to arrive at a per ounce figure. Other companies may calculate this measure differently as a result of differences in underlying principles and policies applied. Differences may also arise due to a different definition of sustaining versus non-sustaining capital. Average realized price and Average realized margin Average realized price and average realized margin per ounce sold are used by management and investors to better understand the gold price and margin realized throughout a period. Average realized price is calculated as metal sales per the statement of comprehensive earnings and includes realized gains and losses on gold derivatives, less silver sales, per ounce sold. Average realized margin represents average realized price per gold ounce sold less total cash costs per ounce sold. 23

25 Total cash costs and AISC reconciliation The following table reconciles these non-ifrs measures to the most directly comparable IFRS measures. Three months ended Nine months ended September 30 September 30 In millions of dollars, except w here noted Gold ounces sold 139, , , ,681 Total Cash Costs Reconciliation Production costs $ $ 86.8 $ $ Less: Share-based compensation (0.4) (0.6) (0.7) (1.3) Less: Silver sales (0.2) (0.4) (0.9) (1.2) Total cash costs $ $ 85.8 $ $ Total cash costs per ounce sold $ 798 $ 668 $ 754 $ 721 All-in Sustaining Costs Reconciliation Total cash costs $ $ 85.8 $ $ Sustaining capital expenditures Accretion on decommissioning and restoration provision Share-based compensation Realized (gain) loss on operating hedges 2 - (5.1) 0.1 (4.4) Corporate administration expense Sustaining exploration expenditures Total all-in sustaining costs $ $ $ $ All-in sustaining costs per ounce sold $ 1,377 $ 1,032 $ 1,181 $ 1,092 1 Based on property, plant and equipment additions per the cash flow statement, which includes deferred stripping. Non-sustaining capital expenditures included in the cash flow statement have been excluded. Sustaining capital expenditures include the value of commissioned assets with deferred payments. Non-sustaining capital expenditures primarily relate to the West Detour project. 2 Includes realized gains and losses on derivative instruments related to operating hedges (foreign exchange and diesel hedges only) as disclosed in the Derivative instruments section of this document. These balances are included in the statement of comprehensive earnings, within caption net finance cost. 3 Includes the sum of corporate administration expense, which includes share-based compensation, per the statement of comprehensive earnings, excluding depreciation and selected non-sustaining activities within those figures. 4 Includes the sum of sustaining exploration and evaluation expense, which includes share-based compensation, per the statement of comprehensive earnings, excluding depreciation within those figures. Non-sustaining exploration and evaluation expense primarily relates to costs associated with Zone 58N, regional exploration, and Burntbush property. Average realized price and Average realized margin Three months ended September 30 Nine months ended September 30 In millions of dollars, except w here noted Metal sales $ $ $ $ Realized (gain) loss on gold contracts - (0.1) - (0.1) Silver sales (0.2) (0.4) (0.9) (1.2) Revenues from gold sales $ $ $ $ Gold ounces sold 139, , , ,681 Average realized price per gold ounce sold $ 1,214 $ 1,273 $ 1,285 $ 1,248 Less: Total cash costs per gold ounce sold (798) (668) (754) (721) Average realized margin per gold ounce sold $ 416 $ 605 $ 531 $