Pretium: the feasibility study is not playing out

(This is a follow-up to the post about Pretium’s disappointing grades.)

Pretium’s current production should exceed 13.1g/t, yet it has been 4.660g/t so far.

According to the latest feasibility study (filed June 30, 2014), Pretium should have a stockpile of 81kt of material grading 13.6g/t gold.  The feasibility study anticipated that this stockpile would be processed in years 2 and 3 of the mine’s production phase while higher grade material would be processed first.  This is because conventional mine engineering calls for maximizing the Net Present Value of the project by mining and processing the most profitable ores first (where possible).  So, current production should exceed the stockpile head grades of 13.6g/t.  If we assume recoveries of 96.6% on 13.6g/t gold, then we would expect a hypothetical 81kt stockpile of 13.6g/t gold to yield 13.1g/t.  Production results so far indicate grades of 4.660g/t for June and July (after processing losses), well below the 13.1g/t level.

It seems inappropriate for Pretium to continue to cite its feasibility study in its investor presentations (they are all on Slideshare) when current production differs so materially from what the feasibility study anticipated.

I know that management has said that they would “lose” gold by running high-grade ore through the mill (see my partial transcription of the Roth conference Q&A here), but I am talking about conventional mine engineering.  Perhaps management would like to believe that conventional mine engineering does not apply to them while they cite the 2014 feasibility study in their investor presentations.  Who knows.

Feasibility study math

Table 17.2 can be found on page 279 of the feasibility study and Table 16.8 can be found on page 198 of the feasibility study.

If you compare years 2 and 3 between the two tables, you will see that the differences add up to 81kt.  Here’s the math:

  1. Year 2: 994.511kt minus 929kt = 65.511kt
  2. Year 3: 994.512kt minues 979kt = 15.512kt
  3. The differences add up to 81.023kt
  4. Therefore, the feasibility study is calling for the 81kt of material stockpiled in the pre-production year -1 to be processed in years 2 and 3 of the production phase.

Recoveries- why 96.6%?

I matched the 13.6g/t grade with the closest figures from Table 17.2.  13.6g/t falls between the 13.0g/t and 13.9g/t of years 11 and 12.  Both of those years are expected to have recoveries of 96.6%.

Closing thoughts

I don’t think there’s too much left to say about Pretium.  I haven’t yet dug deeply into Pretium’s short-term cash flow situation, e.g. by reading all of the BC lawsuits between Pretium, its contractor Rokstad, and the subcontractors Rokstad hired (e.g. More Core, Bear Creek).  Relative to Pretium’s market cap, I don’t think that the lawsuits are a big deal (and it doesn’t look like a clearly-written contract was breached).  The key factor going forward will be the economics of the mine (e.g. its grade), and I’ve said enough about that.  So I expect that I will stop flogging this dead horse.

 

*Disclosure:  Short PVG.

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9 thoughts on “Pretium: the feasibility study is not playing out

    • Thanks for the link! Though I don’t think the problem is as simple as blaming management. In some cases, management destroys value to give shareholders what they want- “growth”. And in general, shareholders don’t realize how much information management withholds from them.

      • You’re right. The ultimate problem is that shareholders keep giving them money! If shareholders demanded better returns in exchange for capital, management would be forced to change.

        Unfortunately, I believe the mining industry has a greater appeal to gamblers than investors. People are praying for that 10 bagger and investing in projects they don’t understand. Heck, half the investment bankers don’t understand the difference between CIL and Heap Leach. Retail investors don’t stand a chance.

      • No, not a metallurgist. I’ve spent quite a few years evaluating mining projects for investors. I am an expert at nothing, but quite knowledgeable about every section you’ll find in a 43-101.

        You’re correct on the issues with Pretium – there’s a reason seniors are playing ‘wait and see’ with them. I don’t think we’ll see any M&A interest until they can show consistent operating results and a solid mill reconciliation. Personally, I put them in the ‘too hard’ pile.

      • Interesting. Thanks a lot for your comments! I tried looking for situations where a miner:
        – Intentionally planned for a grade ramp-up. (I’m not sure how that would maximize NPV.)
        – Had issues with grade when it first opened, but overcame those issues. A Rubicon that turned out ok if you will.
        – Low grades initially due to a extremely nuggetey / heterogenous deposit.
        I couldn’t find a precendent for a mine that really turned itself around. But maybe I’m not Googling the right search terms. Heap leaching did dramatically improve the economics of some mines, but that’s a little different.

  1. When the development is done, a geologist checks each face, and may take samples. If it is in a better zone they may have put that round into a higher grade pile, that has not yet been milled. So their report to date is not conclusive. One goal of trading is to search for 80% probability trades. Is that the case here? There may be better trades out there? I worked in geology in northwest BC and was impressed by the size and strength of the volcanic systems.

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