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
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:
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?
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:
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:
- Only a very small part of the deposit contains gold.
- The overall volume is much smaller than originally thought.
- The veins of gold and silver are incredibly rich.
- If Pretium can find enough of those veins, then the VOK deposit has excellent chances of turning into a mine.
- 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*:
- This is an epic dispute.
- The dispute was laregly a technical dispute between two consultants and their methodologies.
- 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:
- Rick Rule’s comment on my blog post. (It could be an impostor but I think it’s really him.)
- Adrian Day’s interview on various topics, one of which is Pretium.
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.