Pretium’s Resource Estimate filed Feb 3 2014

This is yet another post on Pretium.  It’s not a particularly important one unless you are interested in following the on-going Pretium saga.

On December 19, 2013 Pretium announced the result of its latest resource estimate.  On Feb 3, 2014 they filed the actual technical report on SEDAR.

A quick digression: In Canada, mining companies are allowed to issue a news release about their technical report BEFORE it is filed.  So, you can end up in a situations like Barkerville Gold.  Barkerville released the results of its inflated technical report, many people complained about it to regulators, and then regulators halted the stock AFTER retail investors were hurt by overpaying for the stock.  The Canadian stock market has some features that don’t make a lot of sense.  With that being said, Pretium is no Barkerville and I don’t think that the delay in filing Pretium’s technical report is all that nefarious.  Still, Pretium really did take their time in releasing the technical report.  I believe the limit is 45 days after you issue the press release.  It’s as if Pretium didn’t want investors scrutinizing the technical report.

Now that the technical report is out, there are parts of it that are interesting.  However, in my opinion, the big picture largely remains unchanged.  Graham Farquharson’s Northern Miner interview is still the most accurate assessment of the situation.

Extra sample tower data nowhere to be found

pretium-bulk-program

The diagram above shows the extent of Pretium’s bulk sampling program.  I guess I’m a little slow but I didn’t realize that Pretium has sample tower data for the Cleopatra vein and for other parts of the deposit.  I think that this data should have been incorporated into the technical report and used to validate the resource model.  Pretium management should also be disclosing this data to investors especially when they went to great expense to collect it.

I also find it interesting that they decided to excavate the Cleopatra vein.  This may have been a change of plan as nobody knew about the Cleopatra vein before the bulk sampling program started.  The change of plan seems to run against what Quartermain has stated in an Oct 30 2013 interview:

RQ: No change in the program at all. From what we started last March to where we are, the crosscuts are exactly where they are, the lateral drifts are where we intended, though we modified and dropped two small lateral drifts just to meet our 10,000 tonnage. And then we’d originally planned to do about 15,000 metres of detailed fan underground drilling, and we’ve done about 16,500 metres.

So the program as we set it out is what we’re continuing to go forward with, and all the data we get from that, including sample tower data, we will incorporate into the final results, which will help us go back and validate to the original 2012 resource model.

Dr. Dominy nowhere to be found

According to one of Pretium’s earlier press releases, Dr. Dominy was brought in to take another look at the deposit and to counter Strathcona’s claims:

Snowden’s Response

Given the heterogeneous nature of the Valley of the Kings mineralization, Snowden has consistently advised Pretivm that the entire 10,000-tonne bulk sample needs to be processed prior to completing a reconciliation that can be considered robust. Dr. Simon Dominy of Snowden is reviewing the sample theory underlying Strathcona’s sampling protocols for the sample tower and will be providing a formal expert opinion to Pretivm. Dr. Dominy has noted that he concurs with the current approach of submitting the entire bulk sample (as batches) for full processing through the Montana plant, and has advised that such an approach is always the best route to fully evaluate bulk samples and/or trial mining parcels.

Dr. Dominy has provided a preliminary report to Pretivm that covers several areas of consideration for the evaluation of the design of the sampling Program. This includes the appropriate application of mineralisation characterization study, and the difficulties in achieving representative samples in a high-nugget coarse gold environment.

Dr. Dominy is a dual qualified mining geologist-engineer with 25 years of experience, across mine operations, academic research and consulting. He has an extensive global track-record of auditing, designing and managing gold sampling and assaying programmes. He is a leader in the sampling of coarse gold deposits, and consulted, lectured and published widely on the topic. Recent sampling assignments have included: audits and reviews; integrated studies of ore characterisation, gold deportment and metallurgical testing; sample size determination; sample protocol design and optimisation; the application of the Theory of Sampling; metallurgical plant sampling; metallurgical sampling; and grade control systems. He also has extensive practical experience in surface and underground bulk sampling/trial mining programme design, planning, management and interpretation.

The word “Dominy” does not appear in Ivor Jones’ technical report.

Strathcona nowhere to be found

The words Strathcona and Thalenhorst do not appear in the technical report.  This is interesting considering that Strathcona’s Henrik Thalenhorst participated in the bulk sampling program.  And of course, the technical report does not mention the disputes between Strathcona, Pretium’s management, and Snowden.  In my opinion, this goes against the spirit of NI 43-101 regulations.  The technical report author should provide relevant information about the deposit.  I think that the report should have mentioned that Strathcona worked on the bulk sampling program, participated in the design of the sample tower, and had a different interpretation of the deposit.

The references section does not credit Strathcona or Thalenhorst for any work.  I think that it’s likely that Strathcona compiled data in reports, charts, and graphs.  Normally, one would cut and paste from their work and give them credit in the references section.  To write them out of the technical report strikes me as unusual.

Is the resource model any good?

pretium-comparison-of-model-to-actual-mill-results

The table above shows the differences between the resource models and the mill results.  Clearly the resource models have little correlation with the mill results.  The Dec 2013 resource model overestimates the 615L crosscut by a large margin while it underestimates the 426615E (615E) cross by a large margin.  At a cutoff of 5 g/t gold (the resource estimate uses a slightly lower cutoff of 5g/t gold equivalent), the November 2012 resource model predicted that the 645, 585E, 615E, and 615L crosscuts would be worth mining.  The mill results show that only the latter two crosscuts are economic.

What I think is happening

If you look at the sample tower data, virtually all of the gold is contained in the blue areas below:

pretium-where-the-gold-is-2

Modified diagram.

pretium-where-the-gold-is-1

The original resource anticipated that most of the areas in yellow would be part of mineralized corridors that contain economic amounts of gold.  However, the sample tower data suggests that (roughly) only the areas in blue contain economic amounts of gold.  This goes back to what Strathcona is saying:

  1. Only a very small part of the deposit contains gold.
  2. The overall volume is much smaller than originally thought.
  3. The veins of gold and silver are incredibly rich.
  4. If Pretium can find enough of those veins, then the VOK deposit has excellent chances of turning into a mine.
  5. The veins are less than a meter in width and difficult to find.  The original drilling didn’t quite pick up on the Cleopatra vein as the drilling was largely parallel to the Cleopatra vein.

In my opinion, the partial sample tower data and the mill data presented in the technical report are largely consistent with what Strathcona is saying.

What others are saying about Pretium

In the mining world, I think that Rick Rule and Adrian Day are above average.  Those guys figured out Altius and bought large chunks of Altius Minerals long before I did.  I like Rick Rule because he is one of the few individuals who has come out and said that the junior market in aggregate is valueless.  Both of these investors are bullish on Pretium and are apparently long the stock.  They are largely of the viewpoint that*:

  1. This is an epic dispute.
  2. The dispute was laregly a technical dispute between two consultants and their methodologies.
  3. Robert Quartermain has integrity.  (Frankly, I don’t understand this.)

I respectfully disagree with both individuals.  Strathcona has publicly stated that its problem was that Pretium did not disclose Strathcona’s concerns to the market.  Quartermain decided to misrepresent Strathcona’s arguments and to attack Strathcona’s credibility via straw man arguments.  In my opinion, this is egregious as this forced both parties involved to rack up legal bills.  Pretium shareholders get hurt because it is shareholder money that is paying for Quartermain’s legal bills and for Pretium’s defence against several class action lawsuits.  I strongly believe that Quartermain was trying to deceive investors, has started an unnecessary conflict with Strathcona, and has not obeyed his fiduciary duty to Pretium shareholders.  He should have simply disclosed Strathcona’s concerns (and applied lots of spin in rebutting them).

I would point you towards all of Pretium’s SEDAR filings that were filed on Dec 27 2013.  There is a lot of information there directed towards rebutting Strathcona’s concerns without mentioning Strathcona.  Pretium could have simply done this earlier instead of trying to misrepresent Strathcona’s arguments.

*I apologize if I have misrepresented Rick Rule’s and Adrian Day’s arguments.  You should read them for yourself.  See:

The BCSC

I have a feeling that somebody who reads this blog complained to regulators.  There are parts in the technical report that would likely only exist if regulators talked to Ivor Jones about issues surrounding the Pretium controversy.  For example, the data verification section could have been a cut and paste job from the previous resource estimate because there is no new QC data.  That’s what I would have done.  Instead, the section was changed to remove a chart of the first set of data verification data (in the past, I had a big problem with that data).  It also had a few sentences explaining why only low grades were tested the second time around.  I don’t buy their explanation but at this point I’m not too concerned*.  (*Instead of saying that everything is ok, the technical report needs to present data to back up its claims.  It should show a graph of the QC assays compared to the original, e.g. a graph of half absolute relative difference values.)

The technical report includes most of the sample tower data even though Jones’ written opinion is that the sample tower data isn’t useful.

The set of SEDAR filings on Dec 27 2013 seem to be in response to some inquiry from the BCSC.  It rebutted Strathcona without mentioning Strathcona.  It also finally filed its Nov 22, 2013 press release that it should have filed the previous month.

In any case, I’m glad that somebody talked to regulators who talked to Ivor Jones and/or Pretium.  The disclosure of some of the sample tower data was extremely helpful.  I’m hoping that Pretium is forced to release all of the sample tower data, Strathcona’s resignation letter, the story behind the Cleopatra drift, and information on the geological structures that host the Cleopatra vein.

Making money on this stock

In hindsight, the put options were a bad idea.  For the trade to work out, I needed really bad news to come out on Pretium.  But the news that came out had a gold and silver lining.  The VOK deposit may very well become a commercial mine.  I will likely lose money on my put option position.

I’m surprised that the current borrow is around 5% 3%.  This is an ok short (that’s an opinion, not fact) but I don’t see the stock going to 0.  It’s possible that the stock will take a while to decline as I anticipate that some notable investors (e.g. Rick Rule, Adrian Day) and investment banks will promote the stock.  Some investment banks initiated coverage on Pretium after Farquharson’s Northern Miner interview came out.  I find that to be perverse.  Regardless, usually what happens it that various investment banks will promote a stock in the hopes that management will reward the investment bank with underwriting fees.

*Disclosure:  Short Pretium common, long puts, and long synthetic puts.

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10 thoughts on “Pretium’s Resource Estimate filed Feb 3 2014

  1. The evaluation of Pretium’s Brucejack deposit using the sample tower results are still open to discussion. We had a go around a couple of months ago and are still on opposite sides.
    I too had a look at the posted Sample tower assay results vs the actual and also see he discrepancies between the 2013 resource estimates versus actual mining results. This is an extremely difficult orebody to evaluate but why would you believe a statement to the effect that “there are no resources” as opposed to an actual mining program that produced a substantially higher number of ounces over what Strathcona called an erroneous method. I await the February 12 presentation. I hope to hear measured arguments that will claify why Pretium is using the Snowden MIK approach and why they have chosen to dimiss Strathcona’s approach. i think that a short position on this stock is a substantial risk but we both have our money where are mouths are.

    • The actual quote should be “there are no valid resources”. I think that it was highly misleading for Pretium to release that statement. Everybody knew that there was gold in the deposit. Pretium scared its investors by releasing the comment without the proper context. (Which is a little strange because Pretium did the opposite of stock promotion in its effort to discredit Strathcona.)

      2- I’m not sure if Strathcona called it an erroneous method. I think that the Northern Miner interview is the best place to look for Strathcona’s position.

      Farquharson had to come out and clarify all the misrepresentations that Pretium made about his firm (and presumably Thalenhorst’s work; Thalenhorst did most of the work but it is Farquharson’s firm).

      • Resource(Measured,Indicated or inferred) Without measured or indicated there can be no reserve (proven or Probable). Strathcona said that they did not accept the drill spacing and assay results that Pretium supplied to Snowdens as being acceptable to draw a conclusion as to the classification of any substantial portion of the Valley of the Kings as being classified in any category higher than inferred. This would disqualify the resource calculation for use in a feasibility study..
        Snowdens disagreed and so did Pretium.
        If you think that Pretium would not take Strathcona’s view as being erroneous I disagree and with the proof coming from the bulk sample that demonstrated that even with the error of about 45% low, the Snowdens estimate was a lot closer to the actual than a statement that there is “no valid resource”.
        Two respected professionals throwing rocks at each other is not what I would call desirable but when all of the facts are gathered there is only one truth and I think Snowdens appears to be a better estimator.

  2. My conclusion came from statements made by Joe Ovsenek during the Q&A in the Johm Tomzos conference last year when the questioner wanted the disclosure of the actual resignation letter. Ovsenek stated that there was a fundamental difference in the data analysis between Snowdens and Strathcona related as to how one treats the outliers. You are correct in saying that there was not a public statement that specifically went into the technical dispute but subsequent to the above posts -the February 12 presentation by Pretium’s geologist and Snowdens showed how conventional treatment of outliers significantly underestimated the deposit and even with MIK the results are only correct in a global estimate and becuse of the extreme variability of the orebody where 95% of the gold shows up in 5% of the rock it is necessary to mine entire blocks to recover the important 5%. I am still long and I hope you have covered because this property is headed to production -maybe sooner rather than later.

    • Well I guess that’s part of my problem with Pretium’s management team. They misrepresented Strathcona’s reasons for resigning and the technical disagreement between Strathcona and Pretium/Snowden. The Graham Farquharson interview in The Northern Miner is more or less where Strathcona states its position. He had to come out and clear his firm’s reputation after Pretium said a lot of things to discredit them.

      Strathcona thinks that the only economic gold in the deposit exists in narrow veins like the Cleopatra vein. Their resignation letter said something about geological structures less than 0.5m in width (one of the few sentences disclosed in a Pretium press release). Strathcona is saying that the deposit has excellent chances of turning into a mine, albiet a lower tonnage mine which uses selective mining methods on those narrow and extremely-rich veins.

  3. You have hit the nail on the head. Pretium says mine everything in order to get the inconsistent but pervasive plums of highgrade and Strathcona is calling the high grade as part of a vein system. It is clear from the Feb 12 presentation of the geology that there is no traceable system of veins rather a stockwork system of both east west and north south shoots with erratic values but the frequency of the high grade makes this mining method the best one for recovering the maximum amount of gold at an average mineable grade of about 17 gram per ton. The high grade zones will average several hundred g/t but overall Pretium thinks that the bulk sample has demonstrated that Snowdens mehtod is the best one to create a reliable estimate of a mineable resource.
    From our previous discussions you know that I am not a geologist but I feel the bulk sample results vindicate Snowdens and show that their method works. I wish that Farquarson had waited for the mining results before mouthing off but that is water under the bridge. I am sure he was sincere but wrong.

    • I don’t understand why people think that the bulk sample results validate Pretium’s position. Farquharson knew that there would be a lot of gold in the bulk sample and that the results of the bulk sample were misleading. It’s an accident that the bulk sample happened to intersect an incredibly rich vein of ore. (*There are different geological interpretations here.) This accident really throws off the results of the bulk sample. The rest of the deposit is not as rich in gold.

      The dispute is not about methodology. It’s about the geological interpretation of the deposit. I think that Pretium management has managed to bamboozle a lot of people into thinking that the dispute is about the sample tower results versus the bulk sample results, and that the bulk sample results somehow “vindicate” Pretium.

  4. Once again we are on opposite sides looking at the same thing. Methodology is the key to obtaining a realistic interpretation of the geology of the overall deposit. Rather than being an accident the bulk sample was selected by all concerned -Strathcona, Snowdens and Pretium as being representative because it had low grade, medium and high grade- just what was found.
    From the report by Snowdens it is clear that the Cleo is not a consistent vein but a high grade system of narrow stringers running parallel to most of the early drilling and thus missed by the original drilling. The never ending report of greater than 1000 g/t hits over narrow widths within the stockwork halo have convinced me-what will it take to change your mind-Production over five years?

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