Pretium: the additional underground exploration program management doesn’t like talking about

(To get up to speed on Pretium, you can refer to previous posts such as this and then this.)

In July 2013, Strathcona began voicing its concerns about Snowden’s resource model.  Sometime in the months after (likely as a reaction to Strathcona’s concerns), Pretium changed its underground exploration program to excavate additional material from the Cleopatra and 615L lateral veins (among other changes).  While there were press releases that mentioned the additional exploration in passing, those press releases did not disclose the reasoning behind the additional exploration.

Dueling interpretations

Strathcona is saying that the economic gold is hosted in structural features similar to the Cleopatra vein.  Outside of the 10,302t bulk sample, it is likely that there are very few structures that are both similar to the Cleopatra vein and (more importantly) big enough to have attractive economics.  Recall this sentence that Strathcona wrote to Pretium:

The infrequent high-grade intercepts reported in the press releases have been shown in the underground exposures of the bulk sample program to usually be of very narrow width (0.5 meters) and associated with narrow geological structures that occasionally have mineable continuity as in the case of the Cleopatra Vein.

[*Note: on this blog, assume the emphasis is mine unless stated otherwise.]

Pretium needs to find more structures like the Cleopatra vein to have economic resources outside of the bulk sample.  Other than structures similar to the Cleopatra vein, the grades are too low to be economic.  (I may have mischaracterized Strathcona’s views- see Farquharson’s The Northern Miner interview for his original words.)

Ivor Jones’ resource estimate interprets it differently.  There is a broader stockwork mineralizing system that extends throughout the deposit.  The Cleopatra vein/structure is part of that system.  Page 46 of Ivor Jones’ resource estimate filed Feb 3, 2014 states:

One of the subordinate north-south components of the electrum-bearing vein system, known as the “Cleopatra structure” (north-south to north-northeast-southsouthwest), is considered as being a part of the broader stockwork mineralizing system, rather than being a discrete and isolated feature for the following reasons:  […]

His interpretation is that the broader stockwork mineralizing system hosts economic grades of gold, rather than the gold being concentrated in structures similar to the Cleopatra vein and the rest of the rock (such as the broader stockwork mineralizing system) hosting uneconomic grades of gold.  The differing geological interpretations affect how the high-grade drill results should be interpreted.  Pretium has had many drillholes encounter extremely high grades of thousands of grams of gold per tonne over very short distances.  If these high grades correspond to structures similar to the Cleopatra vein, then the high grades likely do not extend over a large area.  If, however, these high grades are part of a broader stockwork mineralizing system, then the high grades could be interpreted to extend over a much larger area.  I believe this is what Graham Farquharson means when he talks about how far the spectacular assay results should be extrapolated.

It’s the methodology and we pointed that out. It’s the interpolation method that they use and of course they disagree with us. The big challenge with that project has always been: how far do you extract the latent values from the very high grade assays that are scattered throughout the deposit? It’s a very difficult assignment knowing how far to extrapolate those spectacular assay results
[Source: The Northern Miner interview.]

Table 14.9 in Jones’ technical report discloses the search distance used.  The most relevant search distance is for the high grade population.  It was 105 meters by 105 meters by 60 meters for pass 2.

This is the reason why Snowden and Pretium do not want to admit to Strathcona’s geological interpretation- it would result in a much lower resource estimate.  This is likely why Snowden geologists would like to downplay the importance and prevalence of structures like the Cleopatra vein.

For example, we can refer to pages 86 and 87 of Jones’ resource estimate filed Feb 3, 2014.  Jones seems to describe the Cleopatra vein and similar veins in the 615L lateral when he describes areas of “extreme grade” that “are continuous up to tens of metres scale”:

However, the knowledge gained from mapping and sampling in the bulk sample have shown that in some of the extreme grade drilling intersections, the continuity of mineralization is far greater than originally interpreted. Usually, an extreme grade would generally have continuity of at best a metre or two, whereas extreme grades in both the east-west (e.g., 615L and associated raises) and north-south (e.g., 426615 E crosscut and associated raises) components of the stockwork system at Brucejack are continuous up to the tens of metres scale.

But several sentences later on the next page:

However given the coarse gold and stockwork nature of the mineralization and the interpretation that continuous structures containing extreme grades are not likely to be prevalent, it is appropriate to incorporate a degree of smoothing into the estimate to provide a realistic representation of the mineralization.

Despite stumbling across more than one of these continuous structures, Jones’ interpretation is that such structures are not likely to be prevalent.

Pretium changed its bulk sampling plan

Figure 9.1 of Jones’ technical report shows how there was additional underground exploration that differed from the original plan.  In particular, note the addition of:

  • Cleo North Raise
  • Cleo South Raise
  • 615L East and West Raise

The additional raises correspond to the Cleopatra vein as well as the “615L Vein” referenced in this October 3, 2013 press release.

In hindsight, we know that:

  1. A July 23, 2013 press release announces the “Discovery of the Cleopatra Vein”.
  2. Strathcona was expressing concerns about the resource estimate back in July.
  3. An August 1, 2013 press release discloses a change in plans for the bulk sampling program.

    Planning is underway with Strathcona Mineral Services Ltd. (“Strathcona”), the independent Qualified Person for the Program, to increase the portion of the bulk sample tonnage testing the higher grade blocks in the Indicated Mineral Resource estimate to the east of the 426600E cross-cut and decrease the portion of the bulk sample tonnage to the west of the 426600E cross-cut. Bulk sample material excavated to date, approximately 7,000 tonnes, has been processed through the sample tower and is being transported offsite.

  4. Subsequent press releases detail the excavation of the veins, e.g. “Excavation of a drift along the recently-discovered high-grade Cleopatra Vein in the Valley of the Kings has been completed, with two raises on Cleopatra underway […] A third raise is now underway on the 615L Vein between the 426615E and 426645E cross-cuts […]” (September 23, 2013 press release).

It seems to me that at least some of these changes in plan were to investigate Strathcona’s interpretation of the deposit since the veins were targeted.  An April 16, 2014 press release that came out months after the conclusion of the underground excavation had this to say:

Subsequent to the bulk sample program, underground exploration in the Valley of the Kings was undertaken to assess the geological nature of the stockwork mineralization between the dominant east-west system and the north-south Cleopatra structure in the area of the 426615E cross-cut and 615 lateral. Non-selective material, which featured visible gold to varying degrees, was bagged from the blast rounds from benching (rounds of 3 meters by 2 meters and ranging in length from 10 to 15 meters), and from raising (rounds of 1.5 meters by 1 meter by 2 meters). The gold mineralization was hosted in variably-oriented parts of the system, and not limited to a single structural feature.

I think what this poorly-worded paragraph is trying to say is this: Additional underground exploration was undertaken to figure out the geological relationship between the Cleopatra structure and the stockwork mineralization.  The conclusion was that the gold mineralization was hosted in variably-oriented parts of the system, and not limited to a single structural feature.  The Cleopatra structure is part of the broader stockwork mineralization per Jones’ geological interpretation.  The economic gold mineralization isn’t just limited to the Cleopatra structure.

But I don’t really know.  The relationships between the first, second, and third sentences don’t make a lot of sense.  The third sentence may not necessarily be the conclusion of Pretium’s findings.  It might simply be describing the “non-selective material” from the previous sentence.

The December 19, 2013 press release announcing Jones’ technical report does echo Jones’ geological interpretation… so that could be construed as Pretium disclosing the results of its underground exploration on the Cleo and 615L structures.  However, the press release doesn’t really mention that Pretium undertook additional underground excavation to target those veins.

When veins become structures

The October 3, 2013 press release refers to the Cleopatra Vein and the 615L Vein as ‘veins’ rather than ‘structures’.  This distinction became important when Strathcona formally resigned several days later.  Pretium announced the resignation via their October 9, 2013 press release with the title “After dealing with our shit since July, Strathcona finally resigns” “Bulk Sample Update”.  The resignation changed a lot of things.  Pretium was no longer so eager to talk about how the Cleopatra vein as “open in all directions” (see the July 23 and Oct 3 press releases), pointing out that the vein had plenty of exploration potential.  The April 16, 2014 press release months later missed an opportunity to talk about how the vein had very high grades.  It did not mention that the 1,203t bulk sample tested the Cleopatra vein.

Slowly, the “veins” began to be referred to as “structures”.  The October 24, 2013 press release referred to the Cleopatra as a “vein” and the 615L Vein(s) as “mineralized structures”.

Underground exploration continues with raising on the high-grade Cleopatra vein, as well as mineralized structures identified in the 615 lateral drift. Raises will be sampled to help characterize the distribution of gold in the high grade structures.

The December 19, 2013 press release refers to Cleopatra as a structure:

Cleopatra Structure

The high-grade Cleopatra structure was first encountered during Program excavation targeting an area of high-grade mineralization predicted by the November 2012 Mineral Resource estimate (see news release dated July 23, 2013). The Cleopatra structure was subsequently defined for approximately 85 meters along strike and 50 meters above and below the 1345-meter level. Geological mapping, mineralogical characteristics, assay ratios of the different elements and underground observations have demonstrated that the Cleopatra structure is a northerly trending component of the deformed mineralized stockwork system. This interpretation has been developed and supported by geological mapping elsewhere underground.

Much of the test results are in

By December 19, 2013, much (or all) of the additional testing was completed.  The results of Jones’ technical report effective December 19, 2013 was announced that day.  As mentioned earlier in this blog post, Pretium had gone out of its way to excavate the Cleo vein structure and the 615L veins structures, presumably to better understand these structures.

The technical report also suggests that the material was run through the sample tower (along with other material that was part of the expanded underground exploration program).  Figure A1 on page 160 shows rounds marked “CLEO-3” to “CLEO-8”.  The legend for grey areas identifies these as “sample tower round”(s).

I don’t believe that the results of this additional sample tower testing were disclosed.  However, the feasibility study filed on June 30, 2014 has a section on metallurgy describing the results of a 1,203t bulk sample test of material from “the Cleopatra structure (Cleo) vein” (page 140 / section 13.4.1).  Table 13.40 (page 145 of 460 of the PDF) states the calculated/approximate grade of the Cleo Material: 82.6 g/t gold.

At the time, this data was not available as the Cleo Material would not be processed until February 4 to 12, 2014.  However, back in December 19, 2013 it is possible that Ivor Jones was aware of the assays from the sample tower for the Cleo rounds.  In any case, we know from page 86 of Jones’ report (mentioned earlier in this blog post) that he knew that the grades were very high:

[…] extreme grades in both the east-west (e.g., 615L and associated raises) and north-south (e.g., 426615 E crosscut and associated raises) components of the stockwork system at Brucejack are continuous up to the tens of metres scale.

Part of the Cleopatra structure is in the 426615 E crosscut and there are 2 raises associated with it, so we can infer that Jones was talking about the Cleopatra structure.

In hindsight, it seems like the evidence points towards the Cleopatra and 615L structures hosting the majority of the gold found in the 10,302t and 1,203t bulk samples.  The 10,302t bulk sample results show that only the crosscuts with these structures had potentially economic grades of gold (above the 5/gt gold equivalent cut-off used by the resource estimate):

(The 426615 E cross-cut contains part of the Cleopatra structure while the 615 L contains two structures.)

And we know from the 1,203t bulk sample that the Cleopatra structure is incredibly rich- 82.6 g/t gold.  (Note that the grade would be affected by mining dilution and how selective the mining technique used was.  The selectivity of the mining method used is unclear to me.  The April 16, 2014 press release seems to describe dimensions smaller than those used for the 10,302t bulk sample.)  It seems likely that these structures hosted most of the gold found in the 10,302t bulk sample.

But of course, Ivor Jones came to different conclusions because that is how geology works in the Canadian junior mining scene.  Jones’ interpretation is that the “continuous structures containing extreme grades are not likely to be prevalent” (page 87 of the technical report).  The December 19, 2013 press release announcing the results of his resource estimate asserts similar views:

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.

Pretium’s disclosures

Pretium’s press releases did disclose the additional underground work.  For example the August 1, 2013 press release states:

Planning is underway with Strathcona Mineral Services Ltd. (“Strathcona”), the independent Qualified Person for the Program, to increase the portion of the bulk sample tonnage testing the higher grade blocks in the Indicated Mineral Resource estimate to the east of the 426600E cross-cut and decrease the portion of the bulk sample tonnage to the west of the 426600E cross-cut.

However, there are issues with Pretium’s disclosures:

  1. Back in July, Strathcona was telling Pretium that the resource model was not panning out.  Pretium did not disclose this.
  2. Pretium did not immediately explain to investors why the bulk sampling program was changed to add more testing for the Cleo structure and 615L structures.  (It sort of disclosed these reasons at the bottom of this April 16, 2014 press release, months later.)
  3. When Strathcona resigned on October 7, Pretium did not immediately disclose Strathcona’s reasons for resigning in the October 9, 2013 press release.
  4. After mis-representing Strathcona’s reasons for resigning in the October 22 press release, Strathcona had to do an interview with The Northern Miner to set the record straight.
  5. Did the December 19, 2013 press release misrepresent the findings of Pretium’s additional underground work?  You be the judge.
  6. The April 16, 2014 press release disclosing the results of the 1,203t (“1,000t”) bulk sample has issues.

The 1,203 tonne bulk sample completed in 2014

Firstly, there is the issue of whether the 2014 bulk sample was for 1,000t or 1,203t.  The following sentence of the April 16, 2014 press release (link | archive.org) suggests why this distinction matters:

Under British Columbia’s Mineral Tenure Act regulations, we are permitted to process up to 1,000 tonnes per year per claim unit. We will evaluate the potential for the production of 1,000 tonnes of selective high-grade material later in the year.

I suppose that it would be a little awkward to disclose that your company has not followed the letter of the Mineral Tenure Act regulations.  Pretium’s April 16, 2014 press release states that 1,000 tonnes was sent off:

In February 2014, 1,000 tonnes of the bagged material from the 2013 Valley of the Kings exploration was processed at the Contact Mill in Montana.

Yet the feasibility study indicates that the tonnage was 1,203t (in Table 13.40).

As a result, the press release disclosed 3120 ounces for 1,000t of material for an implied grade of 88.45 g/t gold.  The feasibility study implies 3505 ounces for 1,203t of material at a grade of 82.6 g/t gold.  Presumably Pretium did not think that the final calculated grade was material enough to be disclosed to investors.  So it’s a little weird that Pretium did not report the numbers for the full 1,203t.

Secondly, the press release isn’t forthcoming about the material that was tested.  The feasibility study filed on June 30, 2014 states that for “the 2014 processing, the bulk sample used was from the Cleopatra structure (Cleo) vein“.  Section 13.4 Bulk Sample Processing of the feasibility study also states the same thing:

From February 4 to 12, 2014, approximately 1,200 t of the high grade materials from the Cleopatra structure zone of the VOK deposit were also processed at the Contact Mill facility.

Compare this to the press release:

Exploration

Subsequent to the bulk sample program, underground exploration in the Valley of the Kings was undertaken to assess the geological nature of the stockwork mineralization between the dominant east-west system and the north-south Cleopatra structure in the area of the 426615E cross-cut and 615 lateral. Non-selective material, which featured visible gold to varying degrees, was bagged from the blast rounds from benching (rounds of 3 meters by 2 meters and ranging in length from 10 to 15 meters), and from raising (rounds of 1.5 meters by 1 meter by 2 meters). The gold mineralization was hosted in variably-oriented parts of the system, and not limited to a single structural feature.

In February 2014, 1,000 tonnes of the bagged material from the 2013 Valley of the Kings exploration was processed at the Contact Mill in Montana. From the production of gravity and flotation concentrates we have recovered approximately 3,120 ounces of gold. The bulk of the assays have been received to date from Inspectorate America Corporation, and final gold production remains subject to remaining assays and final establishment of weights and assays and settlement.

As discussed earlier in this blog post, the first paragraph may be talking about the aim of the additional underground exploration and the supposed results of that investigation.

The second paragraph avoids mentioning that the material for the 1,203t was from the Cleopatra structure.  This is despite talking about the Cleopatra structure in the first paragraph!!!

And while Pretium issued numerous press releases about the previous 10,302t bulk sample, it downplayed the 1,203t bulk sample by putting the disclosure at the bottom of a press release titled “Brucejack Project Update”.  Whereas management likely felt confident that the 10,302t bulk sample ‘validated’ the (misleading) story that Pretium management was telling investors at the time, perhaps they did not feel so confident that the 1,203t bulk sample would validate their story (especially after Strathcona set the record straight in its interview with The Northern Miner).  Pretium management was happy to issue press releases whenever drill results (including those from infill drilling campaigns) encounter extreme grades.  But when the 2014 bulk sample test revealed high grades (much higher than the average grade in Snowden resource estimates), management chose to be more quiet about it.

All that aside, there’s something really weird about the press release.  The lack of clarity in the wording strikes me as unusual.

Mining results so far

To date, grades have been disappointing as I explained in my previous post.

I would point out that management has told analysts that grades would be low initially.  Presumably, this is why the market hasn’t cared about the data released to date.  In March 13, 2017 at the Roth conference (webcast link) the current CEO was talking about how the mill would start up on low-grade ore.

Here are some comments by Pretium CEO Joe Ovsenek in response to different questions from the audience:

[19:51]

Q:  Um.  Perhaps.  On the startup, just uh for clarity’s sake… your guys’ intention is to probably run some lower-grade ore through first [since the?] beginning, given that — the history of the company’s issues with Strathcona.  Um, you know… the plan is to keep those grades low initially as to, you know, not lose any high-grade ores.  [???]  Is this — [that’s] my understanding on that correct?

A:  Yeah absolutely. There’s no sense in running high-grade ore through the, through the mill given [nothing?] and getting everything online… we’d just be – we’d be losing gold.

So that test stope you see there in magenta is, you known, give or take, it’s around five grams of gold per tonne. So, low grade, pays for itself, but it’s- it’s just not high grade. So we’ll ramp the mill up on low-grade ore, and not until we’re actually quite comfortable with our circuit and the performance of the gravity and the flotation pool before [we’ll really be putting] high grade through the mill. 

Q: [???So for the grounds you have created???] at 140,000 tonnes are you [inaudible]?

A:  We’re not disclosing grade on the stockpile. We aren’t giving guidance actually for 2017. We’ll give some guidance for 2018 at the end of the year and we’ll give a reconciliation of 2017 what we’ve mined versus what we’ve produced. But for start-up, rather than having everybody speculating on a quarter-to-quarter basis, we’re just going to pretty [soon] announce what we’re producing and — we’ll give you some guidance for ’18 and ahead [after that point in time].

Q:  So is it fair to say that a portion of that is due to the fact that when you look at a stope as you get [done the underground testing]  [ones of the kind of expected] grades [we’ll say around] 8 grams in either run … 6 or 10, just because the highest [???lee???] variables of the deposit and the grades, so, you know there – in order to give guidance you really need to be giving it over a longer period of time where the ups and downs of that [???that will durr???].

A:  Also, we want to have more stopes opened up. The more stopes we have opened up, the more stopes we have available to mine at any time and we will be able to smooth our production profile. I think that’s the bigger question for us is just getting a significant number of stopes opened up so we can smooth — we don’t have — we’re not gonna — once we’re mining at a steady state we will not have stockpiles for blending ore. What we will do is smooth our production profile by mining the [various] stopes to get an average grade of roughly half an ounce of gold per tonne. 

And so that’s what we’re looking at, so until we’re up and running and have a number of stopes open that we can, we’re not really focused on guidance.

Ovsenek comments that the test slope is “around five grams of gold per tonne”, yet he doesn’t want to provide information on the grade of the stockpiles or the grade of the stopes.  Let me say this.  It’s a mine engineer’s job to model the resource and to estimate the grade of the ore.  Then that engineer will reconcile actual production versus predicted production and make any necessary tweaks to the resource model and mine plan.  I would imagine that Pretium has this information and chose not to disclose it.  (Also, keep in mind that Pretium is legally supposed to create monthly reports for its lenders that include information on the stockpile grade.)  Pretium has a resource model that is supposed to predict the grade of its stopes; however, Pretium does not seem eager to disclose anticipated grades of the stope ores.  And while sell-side analysts have a silly fetish with next quarter’s production figures, management chose not to provide guidance on that.

But of course, management has been telling investors that the resource model is panning out and that the ‘grade ramp-up’ continues.  Note that conventional mine engineering would call for a grade ‘ramp-down’; profits are maximized when the most economic ore is processed first (where possible).  Pretium’s feasibility study calls for higher grades in the earlier years than the later years – see Table 4 in this press release announcing the feasibility study results.

You can form your own opinions about the points raised.

To be fair, there may be more value to the deposit

Graham Farquharson points out in his 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.

If the mine were to change into a small tonnage mine using more selective mining techniques, the economics of the current mine may become more attractive.  However, I’m just a little disappointed that management took a promising deposit and decided to do something else with it.

In general, mining stocks would have better returns without the shenanigans.  Pretium’s annual report discloses their so-called “investor relations” spending, so we know that Pretium spends roughly a million dollars every year on “investor relations”.  Yet management chooses not to provide shareholders with key technical data that they ask about.

 

*Disclosure:  Pretium is by far my largest short position.  I am biased so do your own homework.

Advertisements

5 thoughts on “Pretium: the additional underground exploration program management doesn’t like talking about

  1. Table 14.9 is just the search range, it calculates the statistics of all sample pairs in that range. From this it then determines the variogram range, which is what we want to know, the distance over which the high grade samples can be applied. That is in the table of variogram ranges for kriging inputs somewhere around page 95(?) of the Snowden 2012 (?) report. It was about 14 m parallel and 3 m perpendicular, but that is where the weight drops to zero, so call it 7 m and 1.5 m. Don’t have before me, so I’m going by memory, but those are the values that Sthrathcona said were too high. To me it’s ok, I see the ranges they used as close enough to be within reason. However, I do agree that the bulk sample was of questionable if not negligible value, and the result from it should be disregarded by investors.

    • Thanks for the reply. I think you might have some concepts mixed up though.

      And I don’t think any of the parties would agree that the bulk sample was of negligible/questionable value.

      • Haha yes, the bulk sample helped raise money, but for an individual to become a shareholder, that person should forget the bulk sample information from any evaluation. It was not representative and did not correspond with the mining method. They said it appeared at random, which I might be suspicious about, and once they knew it was there, they may have decided to make the sample larger! They could have at least taken another bulk sample in the low grade domain. Going over 1,000 was ok, since it covered a two year period. For the other concepts, I’ve taken a geostatistics course, so I’ve got the theory down reasonably well, just don’t have time to read all of the report. One concern, if they have high grade intersections 0.5 m wide, the surrounding rock is the volcanics, not vein material, does it deserve the statistical range that Snowden gave it. Can the statistics be that blind to an abrupt change in rock type? I guess it can since Snowden has the expert staff. It all comes down to the range value they put in the model, but how many shareholders actually understand that? As for me, I first bought and sold after the Strathcona drop, easy profit. A couple weeks ago I bought a smaller position when people were grumpy about the lack of an update. I may hold it, and if share price was to fall on news I’d have to average down. I would be cautious and wary of position size if short, I see it as a reasonable long, all things considered, but that includes my gut feelings.

  2. The model is looking for probability that another vein will occur adjacent or nearby, so what Snowden did was ok I think. Strathcona could have been more receptive to specific characteristics of the situation.

  3. Yes, of course it is a stockwork, fluids from the epithermal deposit injected and percolating through fractured volcanics. Confirmed by close spaced drilling and geostatistics, Points match two stage variogram. See the 43-101 reports, cover your short, whatever you do cover, be thankful for the good opportunity now to get out. Email me if I can help with any questions. Argh, pulling my hair out, if that is what it takes for you to take this seriously.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s