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Tuesday, November 21, 2017

Pretium - teething problems or are there dark clouds on the horizon?

I took a quick look at Pretium's Q3 financial report (link). They made a small loss (net $7m), but this is because they weren't able to sell all of their gold (produced 82,203 ounces Au, sold 55,413 ounces).

However, I'm more interested in the underlying performance of the mine and how quickly it will ramp up to the production figures outlined in the 2014 Feasibility study.
Reserves

lots of gold at a good grade as well...


Their annual production breakdown, for head grade by year

They should be mining material grading 13-16 g/t Au
A typical chart - quick ramp up, in the good stuff for the majority of the project life, then a big drop as they run out of reserves.

Before everyone sends me heaps of abuse (feel free to do so), I understand that we are very early in the mine life, and but I want people to look at the underlying performance at Brucejack.

In the Q3 financials

  • Head grade = 10.5 g/t Au
  • Throughput = 2,840 tonnes per day
  • Recovery = 96.5%
In the 2014 Feasibility Study
  • Head grade (life of mine) = 14.1 g/t Au
  • Throughput = 2,700 tonnes per day
  • Life of mine recovery = 94%

Plant ramp up = good
Recoveries = excellent
Head grade = poor - head grade is ~33% lower than planned.

I know this is very boring, for Brucejack has occasionally raised a number of questions regarding the quality of its resources, the geology and its ability to support a large underground operation. I was surprised that the head grade reported in the Q3 financials was so low. There are a number of factors, including:
  1. Still in the ramp up stage and not yet reached the >15 g/t Au areas?
  2. Excessive dilution, mining barren country rock with the gold veins
  3. Inconsistent gold grades (large variability over very short distances)
For me, it will be interesting to see how the head-grade evolves over time. Will Pretium be back on track in the Q4 financials, or is that an indicator for potential problems in the future with the project not quite reaching the production and profitability figures as promised?



10 comments:

  1. Q3 is July, August and September. In July they just declared commercial production but were still processing a mix of development ore stockpiles and ore from initial stopes. They need to get rid of the development stockpile, and replace it with a high grade and low grade stockpile in order to effectively blend to head grade. The reduction in development stockpile I'm assuming occurred during Q3. So I don't think we can make much of a conclusion about head grades for now. Q4 will be more instructive. My understanding is they have a significant high grade component both stockpile and mill stream as they have already opened stopes in some of the highest grade resource blocks. Once the stockpile and mill stream are stabilized (I would guess this quarter) then we should see if they have sufficient flexibility to meet their objectives (first to achieve design head grade, then probably to exceed it in order to accelerate repayment of debt and buyback of the royalty).

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    Replies
    1. Hello Tom,

      I agree, that is why I included the sentence stating that it was early days. The idea is, that over the course of the next few quarters to see how the operation stacks up against the Pre-feas. If they are consistently missing their production targets due to lower than expected ore-grade, then that could suggest a problem with the resource model.

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    2. Not only would it suggest a problem, it would suggest a catastrophic problem. They are in some of the best grade blocks early in mine life, so if it isn't good now it ain't getting better. On the flip side, just because it is good now, doesn't mean it will stay that way (development sequence requires including more and more resource blocks at the margins of high grade domains).

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    3. Exactly, this is where we are lucky, with Brucejack we have a 'robust' feasibility study and high-grade resources.

      On the flip-side, there have been several questions asked about the quality of the resources and their ability to support a large underground mine.

      If Pretium keep missing their key production targets, it will be very interesting to see how the cover their asses, a la Asanko.

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  2. The production grades listed are by mining block, and I do not think they were meant to be used as head grades. The dilution needs to be included before that, and the feasibility study included a significant allowance for dilution, 15% I think.

    Also year 1 is lower than years 2,3, I think due to the need to begin mining adjacent to the economic cut off boundary. This effect may have been significant.

    Who said that "they have already opened stopes in some of the highest grade resource blocks"?? The company has never said that, and it does not square at all with the mining method being used. Mining blocks with cut and fill retreat mining does not give an ability to pick allow a scenario of choosing the highest grades first.

    paths, Stockhouse id.

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    Replies
    1. Hello,

      The head grades come from the MD&A and the 2014 feasibility study. Even if we take the year -1, according to the study, they should be mining material grading 13.6 g/t Au, including dilution, which is still more than the current quarter.

      As I said, in the first sentence after the figures, we are very early in the life of the project, and they may be mining lower grade material on the way to the higher/highest grade stopes.

      The point I was making, is the Q3 2017 head grade figure a short-term blip, or potentially an early indicator of a more fundamental issue?

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  3. A whooping 33% decline in expected head grade? Those are all bottom line bucks and this operation has some large overhead. Things best improve instead of the alternative.

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    Replies
    1. It could be a factor of the geology and the location of the high-grade zones in relation to the surface access. They may be forced to spend a few months processing lower grade material while they are building the access into the high-grade zones

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  4. There may indeed be real reason for concern here. Co even admitted to juicing it's initial material to get operational. If they can't even chip off their head grade over months of trying WHEN can they meet it?
    Next 6 months will be critical, no question. https://canadastockjournal.blogspot.ca/2013/10/pretium-resources-inc-pvgt.html

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    Replies
    1. Time will tell, and it will be interesting to see how future quarters line up with the PEA as you would expect Pretium to mine the high-grade zones first (if logistically feasible) to minimize the payback period

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