See Pretium’s press release for yourself. The stock is currently down around 26%. Here’s one juicy tidbit from the press release:
Strathcona withdrew from the Program on October 8, 2013 before any results from the processing of the bulk sample were available. In withdrawing from the Program, Strathcona advised Pretivm that “…there are no valid gold mineral resources for the VOK Zone, and without mineral resources there can be no mineral reserves, and without mineral reserves there can be no basis for a Feasibility Study.” They also advised that “…statements included in all recent press releases [by Pretivm] about probable mineral reserves and future gold production [from the Valley of the Kings zone] over a 22-year mine life are erroneous and misleading.”
Strathcona is saying that there is no gold (“no valid gold mineral resources”).
Then the press release gets into a technical argument why Strathcona is wrong. Previously, I misunderstood what Pretium was saying about Snowden’s disagreement with Strathcona. Here’s my understanding now.
The bulk sample consists of a number of cross-cuts. I previously thought that all of the material would be mixed together into one giant >=10,000t sample. This is not the case. The bulk sample will consist of a number of different smaller samples. Cross-cut 426585E is 2,167 tonnes (dry).
That cross-cut was ground up and Strathcona took a small sample out of all the ground material (0.01% of the excavated material would be 0.2167 tonnes, which is several hundred pounds). One way to sample this material is to pour all of the ground ore and to take tiny amounts of ore out at timed intervals. This should be fairly representative of the overall ore. Strathcona’s sample (from the sample tower) of the 2,167 tonnes found the grade to be 2.08 grames per tonne gold. Based on this, the 2,167 tonne sample from the cross-cut should contain 145 ounces of gold.
Pretium/Snowden has released “preliminary” mill results. Total contained gold is 281 ounces, which corresponds to 3.67gpt. That grade may or may not be economic. But the bigger issue is this: why is there such a large discrepancy between the sample and the overall results? There could be highly unusual geological characteristics to the ore. It is likely (in my opinion) that Strathcona has accounted for this by taking multiple samples from the entire 2,167 tonnes. If the gold distribution is highly erratic, then the multiple samples will have very high variation. Fraud is also another potential explanation (though this fraud would have to be very large, expensive, and sophisticated). Maybe the 2,167 tonne sample was somehow salted with additional gold.
I think that Strathcona is highly reputable (e.g. Farquarhson realized that Bre-X was a fraud, though he is not working on the the Pretium bulk sample). The Strathcona engineer probably understands geology and sampling very well. On top of that, the previous QC checks have been consistent with fraud in my opinion. Pretium should publish Strathcona’s written communication in its entirety instead of selectively quoting Strathcona. But in typical junior mining fashion, management is trying to promote the stock and trying to put a positive spin on everything.
The stock has dropped by about a quarter. I don’t think that it has fallen enough.
EDIT: Let me make it clearer. If Strathcona says that there is no gold, they are probably right.
*Disclosure: Still short Pretium common, and added to the position in another account. I did not buy put options because I thought that they were really expensive.