If you read up on coronaviruses that affect livestock, you will quickly discover that some viruses remain a problem despite vaccination. Chickens continue to die from IBV (Infectious Bronchitis Virus) despite being vaccinated. While vaccines improve the chickens’ health overall, they are not good enough to fully solve the problem. If a SARS-Cov-2 vaccine would be similar to our vaccines for IBV, then we will have to deal with the limitations of vaccines.
The simplest way to think about the current COVID-19 situation is that there will be a range of outcomes, with the worst outcome being a prolonged economic depression where a vaccine doesn’t exist (or that people die despite being vaccinated). You can make your portfolio robust against COVID-19 risk by ensuring that you own “safe” stocks that will do fine in a world where social distancing is the new normal.
I apologize for my recent blog posts because they’re uncomfortable. I want to believe that the world will be ok. But the further I go down this rabbit hole, the more I realize that health authorities spread misinformation and ignore scientific evidence. The most disturbing element of the current situation is that many Western scientific authorities promote bad science so that companies have a chance of profiting from the situation via drug treatments, the experimental use of invasive ventilators, and vaccines. They stand in the way of science saving us.
There is controversy over how Sars-Cov-2 spreads from human to human. China and South Korea believe that a significant route of infection is through aerosols; they are trying to safeguard against it as much as possible. The World Health Organization argues that the coronavirus is NOT spread through aerosols. Those who follow the WHO’s line of thinking generally do not take precautions against aerosols (unless there is an aerosol-generating procedure in the hospital).
As investors, we need to pay attention to these differences of opinion. Countries acting on bad advice may take far longer to contain COVID-19 in their country.
Highlights from the production results:
- 2019 guidance lowered from 390-420k ounces to 340-350k. ¯\_(ツ)_/¯
- Mill capacity is excessive as throughput fell from 3562 tpd in Q2 to 3367 tpd in Q3 2019.
It’s incredible that this management team is still around. They have repeatedly misled investors and continue to destroy shareholder capital.
Nonetheless, despite all of the problems with Pretium’s management, the underlying deposit is probably one of the better mining assets out there.
According to the Commonwealth Fund (an endowment-supported US foundation), US healthcare spending has increased to 16.6% of GDP in 2014. Other countries have seen less rapid increases in healthcare spending. For the most part, inflation is being driven by doctors with a vested interest in pushing medical services, expensive treatments, and pharmaceutical drugs. To my surprise, what I’ve found is that many aspects of modern medicine aren’t supported by rigorous scientific evidence. While the FDA drug approval process superficially appears to be scientific, it often isn’t. One way that pharma companies game the system is to prove that a drug (e.g. statins) affects a dubious biomarker (e.g. cholesterol) rather than prove that the drug causes more good than harm (e.g. lower mortality).
Unfortunately, mainstream views on science and medicine are quite ignorant of what goes on. We are taught to only trust medical advice from “trained and licensed professionals”. Much of society worships technology and has blind faith in the claims made by medical authorities. I would argue that this environment is a fertile ground for the trend in healthcare inflation to continue going forward. And if that trend continues, it is likely that American health insurance stocks will continue to do quite well.
Pharmaceutical companies researching active placebos may also do quite well.
I must admit that there is a somewhat useful tidbit of information in Pretium’s environmental filings that I discovered through Viceroy’s hit piece: Pretium was mining ore at a rate of only 2520tpd (tonnes per day) in the second half of 2017. I would note that management has repeatedly talked about expanding the mill to 3800tpd, possibly because institutional investors don’t understand why Net Present Value matters more than growth. Unfortunately, the mill expansion plan looks crazy when the underground mining was 2520tpd versus milling being done at 2895tpd; this indicates that underground mining has been the bottleneck. Management has not been forthcoming about this bottleneck. Nonetheless, I don’t think that this changes the short thesis much as it is overshadowed by the litany of Pretium’s other disclosure issues (e.g. the Ivor Jones resource model has the ultra-high-grade Cleo vein in a zero-grade domain).
This blog post will also discuss why I covered most of my Pretium short and has a section on why Viceroy’s research is nonsense. Continue reading
Viceroy’s research can be found on archive.org or Viceroy’s website.
First off, there is the issue of plagiarism. It’s so strange that Viceroy also happened to stumble across Simon Dominy’s paper on the Brucejack deposit. (To be fair, Viceroy did generate original research of very low quality.)
Secondly, the Viceroy report contains major inaccuracies. It insinuates that Strategic Minerals LLC improperly inflated the bulk sample results.
The facts surrounding Strategic Minerals LLC are as follows: […]
Grade results for the Brucejack mine from Strategic Minerals LLC were far higher than those reported by Strathcona’s tower sample.
In reality, grade results were very similar between Strategic Minerals and Strathcona. Table 9 of Dominy’s paper (draft version with working images, final version) shows that the difference was -10%… well within the expected error coming from a high-nugget deposit. Despite referencing Dominy’s paper, Viceroy seems to have reached some strange conclusions.
In the past, I have criticized Viceroy because they have not been transparent about their relationship with CTS Labs. Now, my problem with Viceroy is that they didn’t read up on mining or hire a fact checker before publishing their report. Viceroy’s reckless and irresponsible behaviour gives short selling a bad reputation and may make life more difficult for other short sellers.
According to Pretium’s financials published on SEDAR on Thursday evening, the Brucejack mine is generating very strong cash flow.
Cash and cash equivalents increased by $72.5M. This is largely inconsistent with fraud. If Pretium were engaged in Worldcom-style fraudulent accounting where expenses were improperly capitalized into capex, then the capex number would be dramatically higher than $5.771M while the increase in cash would be closer to 0. Given how low capex is (even lower than what the feasibility study anticipated, which is $76.8M over the first four quarters of production)… I think that we can safely conclude that Pretium didn’t engage in Worldcom-style accounting for Q2. The market seems confident that the cash generation is real, sending the stock up 19% following the filing of financials on SEDAR. Needless to say, this development is not good for my short position.