Pretium Q2 2018 update: there are things that don’t add up

Pretium has reported excellent grades that are in line with their 2014 feasibility study and subsequent updates to their resource model.

  • Q2 feed grade: 14.9 g/t gold
  • Year 1 of feasibility study: 15.4 g/t
  • Reserve update announced Dec 2016: 14.5 g/t
  • H2 2018 guidance: 11.6g/t to 12.82g/t after recovery losses at 2900tpd operation.  If recoveries are 97%, guidance implies 12.0g/t to 13.2g/t. 12.9 to 14.2 g/t. (EDIT 7/12/2018: Management stated that the guidance was based on 2700tpd on the conference call, so I should have calculated based on 2700tpd.)

The guidance range is insanely tight as it is roughly ±5% (200,000 to 220,000 ounces).  Pretium has gone from complaining about the accuracy of the sample tower data, to saying that it would provide guidance at the end of 2017 and not do so, and now it is saying that it can predict production to within 5%.  Simon Dominy’s paper (draft version with working images, final version), especially Table 9, is worth a read as this newfound level of precision is very suspicious to me.

My gut feeling remains the same: this story will not end well.  There’s one way to validate or invalidate my short thesis.  In the coming quarters, Pretium will release its financial statements.  If the mine is the real deal, cash will pile up on the balance sheet.  In theory, it’s possible for Pretium to cook the books a little simply by not reporting all of its liabilities.  But there’s a limitation to that type of distortion, e.g. I can’t see how it would be possible to understate more than a quarter’s worth of expenses.  Over the span of 1-2 years, the financials will paint a reasonably accurate picture as to the mine’s profitability so far.  Looking at financials would therefore sidestep the issue as to whether or not the reported grades are real.

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