Pretium: Now the pieces of the puzzle are coming together…!

Read the article “Strathcona Minerals responds to Pretium’s bulk sample result” if you haven’t already.

Originally I thought that there was either (A) fraud or (B) Strathcona screwed up.  In a totally bizarre and unexpected turn of events, Strathcona is right but there is no fraud*.

So what actually happened

Snowden’s resource model is wrong.  It overpredicts the amount of gold in the deposit.

However, there was a previously undiscovered Cleopatra vein that affected the results of the bulk sample.  This is why the bulk sample has well over the predicted 4,000 ounces of gold.  This deposit is very different than what was originally presented.  Farquharson basically lays it out for everybody in the Nov 25 Northern Miner interview:

[…] we told them that it has an excellent chance of being a small tonnage, high grade mine mining in the Cleopatra vein and a couple of other similar occurrences that they found in the last drilling program. If they lined all those up, there’s an excellent chance that they could have a small tonnage, high grade gold mine. But they will not have a mine producing 425,000 ounces a year for the next 20 years as they have been advertising so far.

Basically, the tonnage is much lower.  Because selective mining will be used (and due to the lower scale of the deposit), operating costs will likely be a little higher.  A future mine would likely incur significant exploration expenses to figure out where all of the veins are.  A potential future mine would be lower tonnage and lower margin.

I am no good at figuring out the economics of a mine.  I don’t have the same expertise as a team of specialized engineers and access to the technical data.  However, I would guess that the deposit is worth $50-100M+ at the very least.  Maybe as high as $300M???  (This is just my gut feeling.)  Pretium’s latest MD&A states that it has $30.564M in cash and cash equivalents as of Q3 2013.  All juniors tend to have a high burn rate so the cash should be slightly lower now (not that it really matters).

If the shares get in the $0.50 to $1.00 range it is extremely likely that I will be trying to close my position in some form or fashion.

I hope that Robert Quartermain is never employed in the mining industry again.  Kudos to Strathcona for providing timely disclosure of material information and having the integrity to resign.  I need to get some sleep.

*Disclosure:  No position in the common; long much more puts than calls.  I bought some call options intending to turn them into puts but then decided not to.

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4 thoughts on “Pretium: Now the pieces of the puzzle are coming together…!

  1. Take off your Strathcona tinted glasses and reread Farquarsons jutifications. Granted there is some truth that the Cleopatra vein was serendipity but it occurs in an area selected by Strathcona (who was directly involved in selecting the bulk sample area) as being an extreme grade portion of the deposit. This statement that they expected the 4,000 ounces is out of the blue and a red herring. If they expected 4,000 ounces why was it not part of their resignation letter? I hope you are not still short as Pretium (even saying that there will not be a high tonnage operation- when you have 15 ounces per ton- ((over $18,000 ) how big a mine do you need to be extremely profitable. Don’t forget there are at least two vein structures that have been announced- how many more are yet to be discovered and they are nowhere near where the drilling that located a 41 kilograms per ton intercept. I think that there will be a direct shipping low tonnage portion of the VOK but I continue to believe that the 2,700 ton per day-mine it all- will be the way this property proceeds.

  2. Pingback: Pretium: The bullshit engineering continues | Glenn Chan's Random Notes on Investing

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