Organization overview
Detour Gold Mining Corporation is a Canadian gold producer company that was founded in 2006. The company usually operates large scale open pit and Detour Lake Mine in the northern Ontario. As of today, Detour Lake has the largest gold reserves and is the 2nd largest producer of gold. The mission of the company is to deliver organic growth initiatives, ensure growth in its cash flows and further it gold exploration discoveries in other areas in the country (Timothy, 2010). The company is devoted to responsible mining in terms of environmental standards, strong commitment to the community and observation of safety. The main customers of the Detour Gold Corporation are the major petroleum companies in Canadian Oil market. The Corporation has been in existence for about 10 years since it was founded in the year 2006.
Problems associated with Detour Gold Mining Corporation
Problem #1: Financial Questionability
Symptoms:
- Manipulation of the company’s stock prices
- Accounting scandal
- Public opinion
- Mismanagement
- Insider trading
Causes:
- Lack of financial ethics by the management
- Falling stock prices
- Mismanagement of the company
- Errors of omission and commissions which results to loss of the organization’s assets value and money.
- Credit and liquidity issues
During the initial stages of the Detour Gold Mining Corporation the company had a strong leadership being led by its CEO Mr. Panneton a geologist. At this period of time, Mr. Panneton enabled the company to identify Gold reserve amounting to 15 million Ounces in Detour Lake. Nevertheless, the drastic fall of the company’s stock prices from $40 in 2011 to $3 this year has forced its founder to voluntary resign. The financial problems are being faced by the company as a result of the CEO allowing the management to exaggerate the financial statements of the company despite the falling prices of the gold in the market (Timothy, 2010). In addition, despite the falling prices of gold in 2012, the company management decided to issue stock worth $176 to the public in order to obtain cash to continue with its operations of mining. Amid the financial problems facing the gold market, the Detour Gold Mining Corporation went ahead to borrow a huge loan worth $ 135 million. Based on the circumstances which were surrounding the gold market at the time the company would face a hard time in financial the credit facility in the future. As the management aspects remains a major issue of the company, the liquidity aspects within the company continues to sore.
| Alternatives | Advantages | Disadvantages |
| 1) Financial ethics | -Financial ethics by the management would lead to improved cash flow.
-Increase the company’s liquidity. – Reduce external borrowing.
|
-Increase costs of operation.
– expand the management time line. – Demand expertise in management |
| 2) Accountability | – Reduce fund misappropriation.
– Increase efficiency in services delivery. – Proper implementation of the company’s mission and vision. |
– Require extra management time.
– Extra resources are demand to ensure accountability. – It is costly for the company. |
| 3) Operation plan | – Reduce wastage.
– Encourage accountability. – Increases effectiveness and efficiency in management. |
– It is time based.
– Require more resources. – Monitoring. |
Problem# 2: Detour Gold Mining Corporation has low productivity levels
Symptoms:
- As of the year 2014, the company was estimated to have generated a negative cash flow of $48.4 million.
- Bank overdraft of about $6 millions
- Shortage of cash of about $ 156 million
- Shortage of short term investments at the end of third quarter of 2014.
- Loss of market due to low gold prices
Causes:
The Detour Gold Mining Corporation is believed to generate negative cash flow of around $48.4 million as a result of mismanagement and acceptance of insider trading by the company’s CEO. Given that the management had borrowed a loan to service it operation despite the falling prices it had a bank overdraft of around $6 million dollars (Titus, 2011). Since the stock prices in the security exchange company were performing poorly the company was estimated to have a cash shortage of about $ 156 million and shortage of short term investment at the end of the year 2014. Given that the gold market since 2011, the gold from Detour Gold Mining Corporation was also not still performing in the market.
| Alternatives | Advantages | Disadvantages |
| 1) The income generated from the operation and the function of the company must be realist according to the current economic conditions. | – The stock prices of the company should be correctly priced to build the company’s public image.
– High stock prices will attract new investors. – The borrowed loan has the potential to boost the cash flows of the company |
– The negative cash flows will hinder rising of the stock prices.
– The negative cashflow will continue to press the price of the stock down. – The negative cash flow will disappoint the effort of the management in the company recovery. |
| 2) Appropriate management of the fund borrowed | – The abandoned functions of the company would be resumed
– The borrowed funds would be used in boosting the company’s cash flow. – The investors would be encouraged to invest more resources. |
– Borrowing of loans would encourage mismanagement.
– The borrowed loans would lead to inadequate accountability by the management. – The borrowed funds would kill the mission and the vision of the company |
| 3)Diversify the investment | -Being the second best mining company in Canada it has the potential to mine more gold.
– The management must be committed to capturing a larger market – The management must always be opportunistic. |
_ Given the volatility of the gold market, the stock price in the market is unpredictable.
-It is always hard to predict the future prices of the company’s stock. -It is hard to predict the future performance of the gold market. |
Problem# 3: Inability of the Detour Gold Mining Corporation to control the gold market
Symptoms:
- Detour Gold Mining Corporation relies on high prices of gold in the market in order to operate at full capacity.
- Detour Gold Mining Corporation as well as all other mining companies is influenced by price surges in the gold market.
- Detour Gold Mining Corporation has no power to influence it revenue because it takes the price from the oil market.
- The future operation of the company is unpredictable with the resignation of the founder.
- Given the company depend on one source of gold that is Lake Detour there is possibility of it being affected by price fluctuation from time to time.
Causes:
The price of the gold in the world is being controlled by the world gold body. Therefore, even though the Detour Gold Mining Corporation might be willing to improve the price of its gold in order to improve it cash flow it always becomes a task for the management. Just like any other market, world economic crisis are likely to influence the price of gold (David, 2014). The fact that the price of gold has been falling since 2011, the Detour Gold Mining Corporation management could not have the potential to influence its revenues. Poor management and falling prices of gold in the gold market could be the main cause of resignation of the Detour Gold Mining Corporation founder. Inadequate financial resources and misappropriation of the company’s resources could be the main cause of the company depending on one source of gold rather than diversified gold mining.
| Alternatives | Advantages | Disadvantages |
| 1) Produce quality gold | – Build a competitive advantage
– Build a comparative advantage – Be based upon quality management. |
– Being a poor competitor.
– Mismanagement. – Inappropriate monitoring and control systems |
| 2) Internal borrowing | – The company would reduce the dangers associated with external borrowing.
– There would be the possibility to increase the price of stock of the company. – The fund borrowed might encourage the management. |
– Lack of self motivation.
– Would encourage insider trading. – Borrowed funds would promote fraud and money laundering. |
| 3) Diversified mining | – The company would be able to reduce mismanagement.
– The company will increase cash flow. – Stock prices would be stable. |
– Over competition.
– Volatile gold market. – Require more resources to be invested. |
Problem# 4: Detour Gold Mining Corporation environmental issues
Symptoms:
- Detour Gold Mining Corporation is committed towards minimizing environmental pollution but the nature of the operation of the company does not allow it to eliminate pollution fully.
- Waste disposal should be a priority of the Detour Gold Mining Corporation. Nevertheless, the gold mining process has increased the waste disposal in the mining areas and Lake Detour surroundings.
- The Detour Gold Mining Corporation is committed towards minimization of harm to the ecosystems and the wildlife but the immerse activities of mining gold has proven the issue difficult.
- The conservation of the environment has turned to be costly for the Detour Gold Mining Corporation.
- In order to improve the public image and opinion in regard to the company operation there is need for the Detour Gold Mining Corporation to invest a lot on the environment.
Causes:
Gold mining is a complex process which demands separation of the gold from water and soil. During the process of separation, environmental pollution usually occurs and this hinders the company’s fulfillment towards environmental conservation (Milstead, 2013). The fact that there is mismanagement and the cash flow within the company is minimal, waste disposal management has turned out to be a difficult task. Destruction of the ecosystem is difficult as the company needs to expand it cash flow and be in position to refund its credits. Since, the company is under a new management of the CEO Mr. Martin there is a possibility that it will revive its operations and build a resilience public image and opinion in regard to the environment.
| Alternatives | Advantages | Disadvantages |
| 1) Pollution control systems | – Reduce pollution control costs
– Increase cash flow. – Ensure environmental conservation. |
– Increased costs.
– Increased tasks for the management. – Increased disposal of waste |
| 2) Improve the management | – Create more space for waste disposal.
– Avoid dangerous mining areas. – Inform the public in regard to pollution. |
– Dangerous to the environment.
– Much energy is required. – It is more time consuming. |
| 3) Control its operation | – Build strong public image and opinion
– Conserve the ecosystem. – Being into act new management. |
– Increases the duties of each management.
– Increases the operational costs. – Require experts of the environment. |
Problem# 5: Inadequate employee compensation
Symptoms:
- Insider trading
- Mismanagement
- Ethical behaviors in financial presentation
- Lack of vision
- Lack of accountability
Causes:
The Detour Gold Mining Corporation management has been borrowing loan to fund the operation of gold mining with the company despite knowing that the company is performing poorly in the market. There has been mismanagement of funds by the management as the fund borrowed should have boosted the financial position of the company. It is always ethical for the management to present the actual financial statements of the company but Detour Gold Mining Corporation management have been exaggerating the financial statements (Koven, 2015). The CEO of the company lacked the necessary vision of the company as he decided to resign at the time the company was falling. Lack of accountability has resulted into drastic fall of the company’s stock prices from $ 40 per share to $3 per share.
References
Koven, P.(2015).Detour Gold founder resigns as miner struggles amid falling gold prices. Canadian financial post.
