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.
I’m aware that there’s information on mining stocks from guys like Angry Geologist, Exploration Insights (Brent Cook and Joe Mazumdar) and investment bank analysts with mining degrees (P.Geo, P.Eng, etc.). The danger is this: just because they CAN perform due diligence doesn’t mean that they ACTUALLY perform due diligence. I don’t mean to be disrespectful to these people. (*I do understand that I am attacking their credibility.) However, they often come to conclusions without having access to key technical data. For example, Simon Dominy and Strathcona have unique views on Pretium’s Valley of Kings deposit. They had access to all of the sample tower data, including the sample tower data on the Cleo vein. Strathcona had access to the drill core so they could make their own interpretations about the lithology (Wikipedia) of the rocks and therefore the appropriate geological controls. If you don’t have access to accurate lithological information (e.g. pictures of all of the drillcore), then you cannot build a reasonable resource model. Insiders have this information. The investing public doesn’t. When mining professionals make conclusions without access to key technical data, you should take their opinion with a grain of salt.
Secondly, one should question an analyst’s optimism about deposits. With the benefit of hindsight, we can figure out that mineral exploration has been a disaster since 2000. Past optimism about exploration stocks seems quite dubious with the benefit of 20/20 hindsight.
Warning: this post discusses child abuse and may make you uncomfortable…
Our society teaches us that scientists deal with the truth and facts. Scientists’ results are supported by controlled experiments, the scientific method, peer-reviewed journal articles, etc. However, there are charlatans in the world that masquerade as scientists. They do science-ey sounding things without actually doing science.
In the medical field, psychiatry is the worst offender. Conventional psychiatric views are driven by money as the deranged profession ignores very obvious evidence that contradicts their world view. For example, the National Institute of Mental Health website (archive.org, live version) claims that schizophrenia is a “chronic” disease, which means that it is ‘impossible’ for schizophrenia to go away. The reality is that people commonly experience full recoveries from schizophrenia (regardless of medication or treatment). You can see this for yourself on Youtube. Daniel Mackler’s film Take These Broken Wings has interviews with people who recovered from schizophrenia (trailer, full film). One of recovered schizophrenics, Joanne Greenberg, is the bestselling author of “I Never Promised You a Rose Garden” (it has over 26 thousand ratings on GoodReads and became a 1977 film). Despite obvious evidence, the conventional psychiatric field would still like to believe that schizophrenia is a brain disease, lasts for a lifetime, and is something that should be treated by psychiatric drugs (or whatever snake oil therapy is in vogue at the time like lobotomies/psychosurgery, insulin shock, or seizure-inducing ECT).
“It looks like the IT security world has hit a new low.”
-Linus Torvalds, creator of Linux (via Google+)
Linus Torvalds has basically summarized the whole situation: clickbait media sites (e.g.
CNET, Tom’s Hardware, Gizmodo, Vice, The Hacker News) breathlessly report on security vulnerabilities without critical thinking or fact checking. The security industry takes advantage of that by making exaggerated claims and being attention whores. On CTS’ report, Linus states: “I refuse to link to that garbage. But yes, it looks more like stock manipulation than a security advisory to me.”
Thankfully there are some journalists trying to do real journalism. (I know the industry is dying but I’d like to thank the journalists out there who are upholding their journalistic integrity.) In comments to these journalists, charlatans like Fraser John Perring and Yaron Luk-Zilberman have been quite disingenuous. The short and distort campaign has been getting more bizarre.
CTS-Labs has come out with a “research” piece on AMD processors. The reader might be misled into thinking that the “white paper” reveals previously undisclosed security vulnerabilities. However, the CTS-Labs disclaimer (archive.org) states that the CTS report “summarizes security vulnerabilities, but purposefully does not provide a complete description of such vulnerabilities […]”. So from my reading of the so-called “white paper”, CTS isn’t actually revealing previously unknown security flaws.
This isn’t like Muddy Waters’ work on St. Jude, where Muddy Waters alleged security flaws with St. Jude’s pacemakers; St. Jude has since recalled pacemakers to fix security vulnerabilities (Zdnet, FDA). The difference between Muddy Waters and CTS is that Muddy Waters did actual research to find previously unknown problems with the company’s products. Now if CTS actually did find a novel security vulnerability, then I would apologize. However, the CTS report does not clearly articulate what’s a rehash of previously known security issues and what isn’t.
EDIT (3/21/2018): Correction: the bugs are real. Their severity has been overstated as they only work on systems that have already been compromised. AMD says that fixes will be available within weeks while CTS Labs is still claiming that it will take months. Status of fixes for the Promontory chipset are less clear at the moment.