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Monday, November 4, 2019

Pretium - coming back to Brucejack

I've ignored Brucejack for ages, but why don't we return to an old favorite.

Since I last put out a post we've had 3 quarters of production and a new resource calculation.

Reserves and Resources

Why don't we compare the Reserves and resources for Valley of the Kings (VoK)*.

Original Dec 2013 resources




Updated April 2019 resources



*the West Zone resources hasn't been updated and isn't the current focus for production.

There are some slight differences

Tonnage



Reserves stayed about the same, M&I resources dropped by 10%, which is isn't much when you see that they mined >1.5Mt of ore (to end of 2018) since the 2013 Feasibility Study. However, we do see a big drop in inferred resources.

Headgrade


This is where things get slightly less polite.



We see a moderate drop in head grade for the Reserves, a slight decrease for M&I resources, but a big drop in inferred grades.

We can't say this is due to Pretium mining high-grade ore in 2018 as the average head-grade for 2017 and 2018 was only 10.1 g/t Au.

Contained Gold

These changes in tonnes and grade have had a big impact on the contained gold.


Even is we take into account that the mine produced ~0.5M oz in 2017 and 2018, that is a massive decrease in resources, they have lost nearly a quarter of the contained gold at Valley of the Kings.

The question is - is the deposit intrinsically hard to model accurately (yes) or was the 2013 model overly optimistic (yes) and didn't fully understand the control and distribution of the gold.

2019 Production

This is easy, production to date is below expectations, even Pretium cut their 2019 outlook from 390K-420K oz Au down to 340K-350K (40K-80K or ~20%), which caused a nice share price collapse.

So why don't we have a look at the wreckage...

Here is the April 2019 LOM grades by year...
We're still in 2019!
Tetratech tell us that Pretium will be mining ore that is 10.6 g/t Au in 2019

Pretium actually mined.....8.9 g/t Au


But they did get better, cranking the grade from 8.7 g/t Au in Q1 to 9.1 g/t Au in Q3.

Awesome job!! Just 1.7 g/t or 16% below expectations.

From their pessimistic production outlook (slashing production by ~60Koz), we can have a go at estimating the Q4 numbers.

We can calculate the planned Q4 production

  • Est. Annual production - 340-350Koz or 345,000 (taking the mid-point)
  • 2019 production to date = 258,168 oz
  • Q4 production = 345,000 - 258,168 = 86,832 oz

We can try and calculate the average head-grade

Assumptions

  1. Mill throughput = 3600 tpd (still ramping up to 3800 tpd)
  2. Recoveries 97%

Tonnes milled = 3600 x 90 = 324,000 tonnes (assuming 2 days of shutdown)
Ounces produced = 86,832 x 1.03 = 89,437 (removing the 3% loss in the mill)

Q4 average head-grade = (89,437 x 31.1)/324,000 = 8.6 g/t Au

Even if Pretium hit the upper end of the estimated production, the grade only increases to 9.1 g/t Au.

The mine is very productive and highly profitable, but it is still under performing, by 10-15%, its new and improved feasibility study, that dropped the grades significantly. What is interesting for me is that since commercial production began, the mine head-grade has sat stubbornly around 9 g/t Au. Is this the 'real' grade of the deposit?

One observation I had in an earlier post was that I was concerned that as the mill was expanded, we would see a drop in head grade.



There is a trend suggesting that, but I think it is a bit too early to tell.

I know this post is a bit negative, but the mine has consistently failed to meet expectations, I know that I will receive a lot of posts saying that the share price is up, but the rise in gold to US$1500/ounce has helped to mask some issues with the mine.



It is still a fantastic mine, and I'm sure that once the issues are resolved, or at least understood, an if gold price keeps creeping up, I would expect a major company to look very hard at buying Pretium.













5 comments:

  1. Nice work AG. Grade remains their most challenging metric despite a solid program over the last couple of years to tighten up their estimates. Luckily it's not killing them...at least not yet. Investors and analysts are likely more concerned with cash flow, and while grade is very important to cash flow metal price can cover up a lot of sins. So too can exchange rates, which were 1/1 in the 2013 FS but much more favourable in 2019. It's nice to have your costs in $CAD but your revenue in $US.

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    1. I think it will be a good mine, just not as good as the Feasibility study is making out. Maybe this would be an opportunity for a company like Kirkland or Agnico to pick up a profitable mine cheaply (a 350Koz a year producer for $2B with a 15-20% premium)

      Pretium could be a buy at these prices!

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    2. Current market cap is $2.2B, but I think it's over valued. Their 2019 FS valued the company at $2.2B US, but it was at an 8% discount rate, which is in my opinion too low. Should probably be using 10% for valuation purposes, given all the things that can go wrong over the LOM. But my big concern remains grade reconciliation. If the actual grade is significantly lower than the current FS estimate (and results so far in 2019 suggest it is) it would really whack the NPV hard. So with a current market cap of CAD $2.2B and a likely premium of 15% to 25% the only buyers would be those who believe gold is going to $2,000+. Maybe it will.....but maybe it won't.

      As an aside, I used to work with Tony Makuch...a very bright guy.

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  2. I would really like to see a stope by stope reconciliation of mined tonnes and grade vs planned tonnes and grade. I think that would answer 99% of all the questions about this mine. But I doubt that will ever happen.

    I expect to see repeated technical studies released every couple of years slowing reducing the grade until it is 9 or 10 g/t while simultaneously raising the reserve through continued drilling. While increasing production so the ounces to the mill remains constant.

    Hopefully nobody will look behind the curtain.

    Meanwhile all the insiders will continue to cash in their options every year.

    It really ticks me off, it is a great mine, I just wish they would be honest about what they have.

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  3. TAG, a general thanks for sharing your analyses and thoughts on the industry.
    For fun, you should take a look at F*ck Chipke's, err, I mean Chuck Fipke's v.CD zinc project in the Yukon. I'm a little surprised that you or IKN haven't poked and sniggered at it a little. As an exercise, pull up the 1 year stock price chart. Then the 10yr. Then the 20yr. Then smile and chuckle.

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