Pretium Resources (PVG) – Massive red flags

Strathcona has was hired to oversee Pretium’s bulk sample program.  The purpose of these programs is to get a better idea of the amount of gold contained in a deposit since the gold distribution may be erratic and drilling samples very little of a deposit.

Strathcona has inexplicably resigned from the project.  This is a massive red flag for me.  In my opinion, Strathcona has a very good reputation as Graham Farquharson’s work is famous for uncovering the Bre-X fraud.  He has also continued to attack John Felderhof over his involvement in the fraud.  (Felderhof remains a free man, his children are reported to be millionaires, and has never been convicted.  I agree with Farquharson’s assessment.)  His company strikes me as having high integrity.  I was surprised that Strathcona would work with Pretium in the first place since Pretium’s quality control checks were consistent with fraud (see my previous post).  It wouldn’t make sense for Pretium to hire Strathcona if fraud was occurring because Strathcona’s engineers are smart and have integrity.  Now I’m less confused and strongly believe that the red flags are too big to ignore.

Here is Pretium’s press release:

Strathcona Mineral Services Ltd. (“Strathcona”), which had been engaged as the independent Qualified Person to oversee and report on the 10,000-tonne bulk sample for the Program, has resigned from the Project.

I started shorting Pretium today.  I would assume that Strathcona will write a letter to the board of directors indicating their concerns.  The board will have a duty to issue a press release stating any problems with the deposit and uncovered by the bulk sample program.  It could be the catalyst for bringing the share price down.

On the other hand, it’s possible that Pretium isn’t a fraud (or is only a partial fraud and that the deposit contains real gold).

Market cap:  US$480.61M
Pretium is listed on both the NYSE and TSE.
The interest on the borrow is around 1%.

Links

Reading NI 43-101 reports: Data verification – My previous post that explains what you should look for and an analysis of Pretium’s data verification.

IKN – A good blog for no-nonsense news.  The blog contains profanity.

In mining sector, projects live or die on word of independent geologists – News article where a Strathcona employee (Henrik Thalenhorst) comments on independent geologists and (basically) the pressures on their professional integrity.

Baupost Group’s 13-F – Apparently Seth Klarman owns this.  Sigh…

*Disclosure:  Short Pretium.

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