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Wednesday, October 10, 2018

Pretium - Brucejack Q3 Results

Pretium published their Q3 results yesterday (link), and as they are at a steady state in the Brucejack operations, why don't we compare the number to previous quarters.

Au Production


a miss is a miss
Production dropped by 18,700 ounces compared to Q2, 2018 (a 17% drop). This was because:

Au grade



Yup, you've guessed it, we see a corresponding drop in Au grades from 14.9 g/t Au in Q2, to 12.4 g/t Au in Q3. This will always be an issue in high-grade operations due to the nugget effect, where you expect to see +/- 20% changes in production, but over the long term these swings should balance out.

However, if Pretium continue to struggle to make the grade (this is 4 times out of 5 that they have missed), it will put pressure on their resource model.

Recovery



Still great, nothing to worry about here

Mill Throughput



The mill has very slightly under performed, but again, not a significant issue.

So this is again another quarter where Brucejack hasn't hit the expected production outlined in the PEA, they were down 17%, but management is staying positive!



So, to hit that target they need to produce in Q4, 2018:

  • 107,359 to 127,359 ounces of gold by....
  • maintaining a head-grade between 14.4 g/t and 17 g/t Au


Thought for the day:
If Brucejack had met the production profile in the PEA (i.e. a 'perfect' operation), it would be producing ~120Koz a quarter. Since the start of the year, Brucejack has produced ~75,000 ounces less than predicted in the FS.

I'll let you work out how much that is worth..

37 comments:

  1. Good work AG. It looks like they'll need another quarter like Q2 in order to make their guidance. That's a tough position to be in during the final quarter.

    The mill shortfall could possibly be explainable by a liner change in Q3. Recovery looks excellent.

    I agree on the need for them to revisit their resource model and reserve estimate. I think I said that back in May.

    One thing to consider...the PEA was replaced by their FS and the FS should be the comparator for investors, as that was the most recent and most accurate production study.

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  2. Ok, but with the technically oriented people commenting here, the focus could try to look past the grade, tonnes, and $'s that others have already reacted to. The company is closing in on one year of production and so had to restrict the daily tonnage down to counteract for the early quarters that ran higher than were prescribed by permit limits. The company knows that grades will be higher in Q4 due to higher grade stopes having been initiated during Q3.

    The bigger picture to focus on, is the overall situation being different than many other gold mines. High production rates, low cost bulk mining, good grades, large quantities blocked out, with excellent chances of additional discoveries. Unfortunately this is not seen as more important than the quarterly ups and downs.

    Paths, (stockhouse id)

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    1. Fair enough, it's not an absolute disaster but a company cannot maintain its share price if it consistently misses guidance.

      The objective for the company should be to achieve predicted cash flow. (assuming metal price is similar to projected price) The four key factors to do this are tonnes, grade, recovery and costs. So far they have missed badly on the second one and as AG pointed out it's having a huge impact on predicted cash flow.

      Additionally, no mine would restrict tonnage on your reasoning above. MeM have never to my knowledge penalized a mine for exceeding annual tonnage. But assuming you were correct then the company should have anticipated this and built it into their guidance at the end of Q2.

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    2. I assume that this would have been known about as they are investigating the option of expanding the operation.

      However, i do like the idea that a some of Monty Python-esque old biddies marching into the Pretium offices, telling then that they have been very naughty boys in mining more ore and producing more tax revenues for the state and federal governments.

      That would definitely deserve a fine....

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  3. This is nada good and my reasoning is simple. Co needed to at least match the latest. A nearly 20% drop in bottom line production ain't that. IF it happens again, and I have always supposed the next Q will reveal all, this co's 'plan' ain't worth fuk all.

    Nearly half a fukkin billion in debt and what is supposed to accrue to equity holders exactly at this rate?

    I would also point out GTT.v that has produced more evidence of a big porphyry. Paper explodes and my brilliant call on that is shot to chit. I'm just not sold on uber high cap projects involving beat down Au and Cu. (particularly financed 100% with tax assisted dough.)

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    1. All mine projects are high capital...for a lot of reasons. In the past I've looked at maybe 30 or more in BC (paper exercise) and could not find more than one that produced more than 15% IRR. Those were typically done at $2.75 copper and $1,200 gold. And none of the risks (resource estimate tonnes & grade, capital or operating cost over runs, permitting, etc) had been managed beyond the desktop level.

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    2. Trouble these days are that many are relying on unrealistic numbers because they must. One example, of many, is RIO2 which is a low grade heap leach proposition. They are needing, very much, to rely on $ 1300 Au. Cu is even worse with some muttydogs unable to move off $ 3.00 per at all else everything falls to pieces.

      PVG.t is like a poster boy for dopey assumptions from blind capitalists IMO. Boyotards HAD TO have a high volume/high grade operation. I have a seriously baaaaad feeling about Q4 from that operation.

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    3. The important price is the one at which an operation can pay its bills. The other important one is the price at which a company can additionally pay its corporate costs and debt servicing. Most investors overlook the second one and get hammered when price drops. Thompson Creek comes to mind. And Imperial Metals. They both had debt service costs they could not manage. Right now I'm wondering how Pretium plans to handle its short term debt.

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    4. This comment has been removed by the author.

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    5. The debt question is answered in their Oct 4 news release. If I were the lenders I would have gone over their resource and reserve estimates with a fine tooth comb to minimize the risk of default. I would also have had some in depth questions about their reconciliation.

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    6. This is from a Sept 24 news release. If reconciliation isn't a problem (as they indicate in the news release) then there must be a problem with the reserve grades.

      H2 2018 Production and Cost Guidance

      Pretivm continues to refine and update the grade control model with the benefit of data from ongoing production. To date, the updated grade control model is reconciling well to mill production. As a result, the Company anticipates meeting production guidance of 200,000 to 220,000 ounces of gold and all-in sustaining cost guidance of $710 to $770 per ounce gold sold for the second half of 2018, with
      production weighted more heavily in the fourth quarter than the third quarter. Reconciliation of the global resource model for the Valley of the Kings against mill production for 2018 is anticipated in early 2019.

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  4. Something for certain stinks in this Denmark. 37 operating stopes is the rumor, almost 4 times the number predicted for this level of production in 'the plan'. Fully secured types can afford to overlook what accrues at the end, if anything. HOW this operation will return a nickle to equity holders is a straight-up mystery to me right now. Dividends? That is to laugh (for many years) with $500m in debt sucking up free cash flow.

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    1. If true, it's not as bad as it sounds. Some stopes will be in development for future production, some will be in drilling phase, some will be in drop raise cycle, some in blasting/mucking and some in backfill mode. The mucking rate will depend on the overall size of the stope and the way it's blasted. If the stopes are smallish (less than 10,000 tonnes) then 500 tpd is probably the average production rate over the mucking life. Higher daily tonnage from larger stopes. If they have any trouble with oversize in the stope that will slow things up. And if they install cable support that will also slow the overall stope cycle.

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  5. GTT.v. https://pennystockjournal.blogspot.com/2018/08/gt-gold-corp-gttv.html

    Two things here. 1% Cueq and sheeples care not much. Nail a chitload of it and EVERYBODY cares, OMG. Second is the beautiful disclosure from GTT with drill maps and everything. Compare this to the fukheads at GGI.v

    Finally. There wuz talk of the ground contingent to GTT being up for grabs this spring. I wonder who controls that dirt these days.

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    1. I've just done a post, they even include on the maps
      1. hole where results are pending
      2. holes currently underway

      And no PR saying we've drilled 482,000,000,000,000,000 km of rock with viz sulfides.

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  6. Reconciliation Please!

    When they started mining, the grade was low, ~6g/t against a planned FS grade of about 13 g/t. From this alone, the resource model comes into question. After a lot of hard work from the geologist, they worked out that they can find the higher grade section of a stope by sampling all the longhole drill cuttings. By doing this they managed to get the grade up to ~11 g/t. Good for them, well done.

    Problem is, by doing this, they are not recovering 90% of the stope, looks like (from the sketch they presented) they are getting only 50 to 60% of the stope, and still not getting the FS grade. Sounds like the resource is about half of what is in the model.

    On top of that, they now need to develop 700m per month instead of 450m per month to maintain 2700 tpd production. I presume this is because the stopes are all smaller than planned. How they are going to manage 3900 tpd I cannot guess.

    And there was some talk of going to longitudinal stoping. How can they do that when geotech says they cannot stope wider than 15m, unless the stopes have shrunk in size?

    They are drilling like mad on site, not unusual, but somewhat strange since the deposit was supposed to be in Measured and Indicated category already.

    I think there are a lot of questions around this property and the Resource model, all of which could be answered by just releasing the reconciliation of tonnes and grade against the planned stope tonnes and grade for the individual stopes. This is mining 101 at every mine I ever worked at and they are certainly doing it here. So the question is, why not release this information and kill all the short nonsense and push the stock up?

    The only answer I come up with is the Resource model is not measuring up and they are frantically drilling to find some new resources so no one will notice as much when they finally do release the bad news. There is certainly no shortages of places to drill on that property.

    Just an opinion

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    1. Your opinion is very well thought out. I've been saying very similar things for more than a year. I expect there could be yet another year before the cloud has lifted and everybody can see things clearly. By then Pretium should also have figured out a lot of things and the mine could already be on the way to looking like the way it should have looked initially.

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    2. For me, the updated reserve calculations will be interesting. Will we see an 'adjustment', either with a change in head-grade (to more accurately reflect the head-grade, say 11-12 g/t Au), or a reduction in the total tonnages (focusing on the high-grade areas)?

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    3. I wonder what model assumptions they can change to still get something reasonably close to the original numbers? Lots of assumptions in MIK and no validation so it's not like we are going to find the wizard behind the curtain that easy. I think block level reconciliation is necessary and if we don't see that in detail then an updated reserve calculation could be a lot less useful.

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    4. So far the company has indicated they plan to increase throughput, which usually results in lower grades.

      Given their snake like cumulative probability curve I suspect we'll continue to see poor reconciliation. It's a very tough deposit to model....one of the toughest in the world.

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    5. Edited to add that Pretium say their results are reconciling well to their ore control model. But one wonders...how does the ore control model look when compared to the ore reserve model?

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  7. Heads Up on Westhaven Ventures Inc. - WHN.v. "17.77m of 24.50 g/t Au and 107.92 g/t Ag" Market seems impressed and boys still have VG to report.

    https://pennystockjournal.blogspot.com/2018/10/westhaven-ventures-inc-whnv.html

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  8. GGI gets jacked on NR about something 'new' exposed by snow melt. Riiiight. Massive and 'open in all directions' I'd fukkin wager. Likely the last 'news' from Rogoci this year pffft. 29 completed holes he says. And looky at all the assays and maps and stuff, double pffft.

    For those 'into' Vanadium, and there ain't many of us, yet, check the numbers for TSE star Largo. LGO.t. All in for $ 4.70 for something selling for $ 23 adds up quickly eh. I like FVAN.v.

    https://canadastockjournal.blogspot.com/

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    1. Largo is still decent, but has had a great long run. If a major newsletter starts a vanadium hype, First Vanadium will be a good one as will the more advanced Nevada vanadium project of Prophecy (which I actually like better, though I'm no big fan of John Lee's prior antics, but the hiring of Detour Gold's Panneton gets me over the hump).

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    2. I'm a vanadium newby. Economics make sense for something basically lying on the ground. Largo's presentation is a good primer. Financials are robust for them.

      So I go back on GGI.v rubbish and sure enough that K9 Rogoci spewed about 'open in all directions' AGAIN. 39 iffing completed holes with the vast majority not reported at all and this mutt has the .... errr, never mind. Grrrrr.

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  9. Angrygeo, Are you planning to do a Leapfrog on the Serengeti drill holes that have popped that SP for more than a double? They are entirely inside the existing resource (infill) but wondering if there is a chance they might represent a significant improvement in grades.

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    1. I've looked at this project several times. I really like it for a lot of reasons but I was never able to find a way to make it economic.

      I know the geo that did the resource estimate....one of the best. I doubt infill drilling will increase the total resource estimated grade but there will likely be changes in some blocks. Some positive and some negative. What this project needs is more OP and fewer UG tonnes. The South zone won't generate positive cash flow...grade is too low.

      The PEA said NSR on UG mill feed was $47.85/t but if you take the grades shown and use the assumed metal prices and recoveries I get a total value of $42.71/t. Assuming 25% for transport and TC/RC gives a site revenue of about $32/tonne. That's too skinny for an UG mine, even for block cave.

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    2. Thanks AG looking forward to it. Bill, my thinking was it needs higher metal prices to just be a marginal mine at moderate scale so pretty much the only thing they can do is try to boost grades and revise a mine plan around a modest scale at prevailing metal prices, then hope like hell for prices to rise longer term. Not a big fan of that approach, life is too short.

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    3. There are only about 8 years of decent grade material, followed by 7 years in the central zone where grades are less than 0.30% Cu with little to no gold...basically uneconomic in my view. Eight years isn't enough to recoup capital if copper price plunges like it did in 2015/16. Ideally one would want enough years with good grade to last over an entire copper price cycle. So I think this project needs more tonnes, or alternatively a lower milling rate (currently 15,000 tpd) with higher grade. Maybe this is their Plan B....drop the throughput to say 8,000 tpd for 15 years? But that would be a really small operation...maybe 30 million pounds per year and 30,000 ounces of gold. The other negative of lower throughput is carrying fixed G&A costs.

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    4. I think they can do some stuff with pit outlines, stockpiling strategies, etc. to make some other marginal improvements. For example a pit wall that hugs cutoff grades nicely can sometimes be pushed back in reaction to higher metal prices ... this can be difficult to capture in project economics. On the flip side, mines have failed simply because ore blocks couldn't be conformed to reasonable blast shapes and orientation, resulting in excessive dilution.

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    5. Lerch Grossman based software such as Whittle is a strategic tool to determine the most economic pit, defined as the one with the highest NPV. The two most significant variables are grade (trying to bring higher grade forward in the schedule) vs strip ratio. (A huge cost factor)

      It is an easy exercise to change metal prices to see how pit shape/size varies.

      It's true though that deposit geometry doesn't always conform to the proposed mine plan. Miners always want the largest possible equipment to improve productivity but the deposit may not lend itself to high benches and large loaders. I visited a mine in Namibia where the ore bench height is restricted to less than 3 meters (BC pits typically have 12 to 15 meter bench height) to minimize dilution. Productivity is low, but labour is cheap so it doesn't hurt them too badly on the cost side.

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    6. I forgot to add that I think you're right about needing higher metal prices.

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