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.

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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.

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Thoughts on mining (2017 edition)

Some key lessons on mining companies:

  1. They regularly withhold key information from investors.
  2. Technical reports should not be relied upon because many of them are disconnected with reality.

Without key information on a mine’s economics, these companies cannot be accurately valued.  So… mining stocks aren’t a great place to look for longs.  You might spent a lot of effort trying to value a mine and still fall short of being able to find reliable information on that mine.

On the short side, there are some opportunities.

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Pretium update: disappointing grades

(*Disclosure:  Pretium is by far my largest short position so I am biased.  Take what I say with a grain of salt and do your own homework.)

The production figures reported in Pretium’s MD&A filed on August 10, 2017 fall far short of the projections from Pretium’s latest published feasibility study.

According to the feasibility study filed on June 30 2014 (effective date June 19, 2014), year 1 production from Pretium’s flagship project would have a head grade of 15.4 g/t gold with a recovery of 96.8%.  The effective grade after recovery losses would be 14.9072 g/t gold.

Figures are from Table 17.2 of the technical report.

Compare this with the data from page 2 of the MD&A:

  • For June, 8510 ounces of gold were produced and 70805 tonnes of ore were processed.  8510 / 70805 X 31.1035 gram/ounce = 3.738 g/t for June
  • For July, 16882 ounces of gold were produced and 83667 tonnes of ore were processed.  16882 / 83667 X 31.1035 gram/ounce = 6.276 g/t for July
  • An average of 5.113 g/t for June and July

The 3.738 g/t and 6.276 g/t fall far short of hitting the 14.907 g/t mark projected from Pretium’s feasibility study three years ago.

EDIT (10/3/2017): Changed the gram<–>ounce conversion to reflect troy ounces rather than avoirdupois ounces.  I apologize for the error.

While grades so far have been low relative to the estimates from the feasibility study, Pretium does expect grades to ramp up [page 4; emphasis mine]:

Working Capital

As the Brucejack Mine continues to ramp-up grade, we expect the increased production and concomitant proceeds from the sale of doré and flotation concentrate will enable us to overcome our short-term working capital deficit. We expect as gold production ramps up this deficit will reverse (refer to the “Liquidity and Capital Resources” section below). In addition, we are evaluating other opportunities to bolster our short-term working capital.

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Pretium 2017 recap – “they will not have a mine producing 425,000 oz. a year for the next 20 years”

(Pretium has a US$1.8B market cap and the borrow is in the low single digits.  I have written about this stock previously.)

Back in 2013, Strathcona resigned from the Brucejack gold project due to disagreements over what Pretium was telling investors.  Graham Farquharson (Strathcona’s head honcho) was being a gentleman and allowed Pretium to disclose on their own terms (with their own PR spin).  Unfortunately, Pretium instead tried to discredit Strathcona.

So, Farquharson did an interview with The Northern Miner, a trade publication.  You can read the interview on the website (no paywall):

Yes, and we told them that it has an excellent chance of being a small-tonnage, high-grade mine 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. But they will not have a mine producing 425,000 oz. a year for the next 20 years, as they have been advertising so far.

Here’s the crazy part.  This is 2017 and Pretium is almost finished building that mine.

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As commodity prices plunge, miners are stretching their numbers

My July 8 post “Mine economics explained” explains why I think capitalization of stripping expenses is bullshit.  The current trend is for miners to make more aggressive assumptions in that department to boost their earnings.  This is contrary to reality.  Lower commodity prices means that mines will close earlier.  It would make sense to take impairments on previously capitalized expenses.  (Or better yet, accounting rules should be overhauled to reduce accounting shenanigans, investor transparency should be improved, and the accounting burden on public companies should be reduced.  Simpler rules would benefit investors.  The problem is that the system has been co-opted by public companies that want to play games with their accounting and rulemakers who enjoy lucrative consulting gigs helping companies game the complex rules that they created.)

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Sentieo: a better way to perform due diligence

Since January 2015, I’ve been using a research platform called Sentieo (website).  The main attraction of Sentieo is “Document Search”, a tool that searches through EDGAR filings, investor presentations, and conference call transcripts at the same time.  It allows me to find key pieces of information that I otherwise would not find.

For short selling, Sentieo is incredibly useful since almost all of my short selling involves tracking down scumbags.  Much of my work is spent searching through SEC filings for names of people, company names, and addresses.

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