Pretium: The bullshit engineering continues

Today, Pretium issued a press release: Pretium Resources Inc.: Mineral Resource Estimate Adds Measured Gold Resources, Increases Grade at Valley of the Kings

Basically, Snowden is pretty much going to stick with its aggressive approach in modeling the VOK deposit.

The press release also contains some information aimed at invalidating Strathcona’s competing theory about how the resource should be modeled.

Changes in Snowden’s Resource Estimate

From the Nov. 20 2012 press release:

High-grade gold resources in the Valley of the Kings (5.0 g/t gold-equivalent cut-off) total:

  • 8.5 million ounces of gold in the Indicated Mineral Resource category (16.1 million tonnes grading 16.4 grams of gold per tonne); and
  • 2.9 million ounces of gold in the Inferred Mineral Resource category (5.4 million tonnes grading 17.0 grams of gold per tonne).

From the newer Dec. 19 2013 press release:

High-grade gold resources in the Valley of the Kings (5.0 g/t gold-equivalent cut-off) total:

  • 8.7 million ounces of gold in the Measured and Indicated Resource categories (15.3 million tonnes grading 17.6 grams of gold per tonne); and
  • 4.9 million ounces of gold in the Inferred Mineral Resource category (5.9 million tonnes grading 25.6 grams of gold per tonne).

If you believe Snowden (I sure as hell don’t), then the original resource model was slightly conservative.  The new estimate has higher grades and more gold in total.  The new estimate suggests better economics than the older estimate.

Strathcona’s take

Farquharson has already stated his company’s take on the VOK deposit (which I have discussed in the past).  But basically, Strathcona’s argument is that there are two errors that go in opposite directions:

  1. Snowden’s resource model is overly aggressive.
  2. The unexpected discovery of the Cleopatra vein inflated the bulk sample results.

Subtle arguments against Strathcona’s competing theory

Notice that today’s press release contains information that argues against Strathcona’s viewpoint:

Valley of the Kings Geological Confidence

The Mineral Resource estimate has been informed by extensive work focused on the geological interpretation of the Valley of the Kings. The high-grade mineralization in the Valley of the Kings is hosted in a broad deformed stockwork, and a key outcome from the Program was the underground confirmation of both lateral and vertical continuity of the vein systems comprising this stockwork and the location of high-grade corridors of mineralization.

A detailed view of the underground mapping of the veining in the bulk sample area is available at http://media3.marketwire.com/docs/undergroundmapping.pdf.

The underground mapping PDF shows the locations of “precious metals-bearing veins, sheeted vein[ ]stockworks, vein stockworks and silicified zones”.  This is to show that the gold-bearing mineralization is (essentially) everywhere.

Strathcona’s argument is that the gold is concentrated in veins such as the Cleopatra vein.  It is concentrated in narrow veins that are equal to or less than half a meter in width.

Criticisms of the Snowden model

What I think other people and geologists (like Brent Cook, the newsletter writer of Exploration Insights) will say:

  1. It is difficult to measure the amount of gold in a highly heterogenous deposit.  Many geologists have the opinion that these types of deposits are so difficult to estimate that the accuracy of the estimates cannot reach the level of Measured resources.  Snowden’s model has 2.0MT of Measured resources.  This level of certainty is unjustified.  The majority of that 2.0MT should be in the Indicated category, not Measured.
  2. The resource model should be constrained by lithology.
  3. The effective top cut is too high… because there is none.  (I wouldn’t expect an appropriate top cut value to make more than a 30-50% difference.)  How Snowden did this is by splitting the gold mineralization into two different types: high grade and low grade.  My understanding of the resource model is that the segregation is based on the grade of the gold (and how nuggety it is?) and not by lithology.  The high grade gold does not have a top cut applied to it; only the low grade gold has a top cut applied.  From the feasibility study:

    Multiple indicator kriging was selected for estimation of the higher-grade population within the high-grade domains, to control the skewness of the data. Multiple indicator kriging involves modelling variograms at a series of grade thresholds, which allows the range of continuity to be reduced at the higher grades. A mathematical model was then used to define the top end of the grade distribution. The result of this estimation method is that, while no top cut is used to limit the higher grades, the higher grades are limited in their influence using a mathematical model based on the higher-grade data to estimate grades in the top class. This is based on probability rather than using the individual extreme grades in the dataset for grade estimation.

  4. Some people might argue that 30g/t is the appropriate top cut value; I disagree.
  5. Strathcona’s interpretation is probably the correct one.

In my opinion, Ivor Jones of Snowden engaged in bullshit engineering.  I do think that there are two different types of gold-bearing mineralization.  Only the high-grade mineralization really matters for the VOK deposit.  The high-grade mineralization likely exists in the form of <=0.5m wide veins as Strathcona is saying.  Jones is inappropriately ignoring the lithology of the rocks and essentially assuming that the mineralization happens across much wider zones.

The soap opera continues

I guess I am disappointed in Ivor Jones of Snowden for not putting on the brakes.  But I don’t think that he will face any consequences for his bullshit engineering.  If Peter George isn’t in trouble for his egregious report for Barkerville (which led to the stock being halted), then there is no way that Ivor Jones will get into trouble.  (Interestingly enough, Barkerville also hired Snowden.)

Potential acquirers of the VOK deposit likely will not take Snowden’s resource estimate seriously.  Acquirers know that juniors regularly inflate their technical reports.  They will probably be very interested in Strathcona’s views as Strathcona has integrity and has a lot of experience in modelling nuggety deposits.

*Disclosure:  Short Pretium common, long puts, long synthetic puts.  Barkerville is something I would short but I currently have no position in it.

*DISCLAIMER:  Just because I use strong language doesn’t mean that this is a great short.  Do your own thinking.  The problem I have with Pretium is Robert Quartermain.  If he simply committed some garden-variety mining fraud, I wouldn’t care so much.  The problem is that he has gone out of the way to cause problems for honest people.  Quartermain waged an unnecessary campaign to smear Strathcona’s reputation.  It offends me that Quartermain is trying to hurt people for little or no financial gain; it would offend me less if there was significant financial gain involved.  Also, his plan is kind of stupid because Strathcona could have tried to cause a shitstorm for him.

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