VANCOUVER — Shares of Pretium Resources (TSX: PVG; NYSE: PVG) dropped sharply following a Jan. 23 production update for its flagship Brucejack underground gold mine in northwestern B.C.’s Golden Triangle district.
The company’s stock closed at a 52-week low of $9.18 during after four days of trading on the Toronto Stock Exchange (TSX). It saw around 13 million shares trade hands by the time of writing.
Pretium’s release reviewed the initial six-month ramp-up at Brucejack and provided guidance for the first six months of 2018.
The company reportedly produced 152,484 oz. gold at the operation since declaring commercial production in early July. It milled 271,501 tonnes of ore during the fourth quarter and produced 70,281 oz. gold.
Pretium indicated that grade reconciliation to the reserve model has been running at 75% to 80% during the August through December period. The company explained that ore from stopes developed on the project’s 1,200-metre level sill provided 25% of mill feed. It said that the area had “lower drill density than stopes on other levels of the mine.”
Brucejack’s Valley of the Kings (VOK) deposit contains 8.1 million oz. gold in 15.6 million proven and probable tonnes of 16.1 grams gold per tonne. The West Zone deposit, which is north of the VOK and part of the current mine plan, contains 2.9 million proven and probable tonnes of 6.9 grams gold for 600,000 oz. gold.
Flotation cells in the mill at Pretium Resources’ Brucejack gold mine in British Columbia. Credit: Pretium Resources.
BMO Capital Markets analyst Andrew Kaip noted that Pretium’s fourth quarter production numbers were “well below” his expectation of 91,800 oz.
He attributed the shortfall to a significantly lower-than-expected grade despite higher tonnages milled. BMO had projected Brucejack would produce at around 12 grams gold, while the results indicate the mine is currently averaging around 8.4 grams gold.
Pretium now estimates production for the first half of 2018 to be in the range of 150,000 oz. to 200,000 oz. gold at all-in sustaining costs (AISC) of US$700 to US$900 per oz. gold. BMO analysts had modelled the operation to produce around 205,000 oz. over the next six months at AISC of US$400 per oz.
“We would have thought that mining would have focused on better delineated stopes with delineation drilling completed on the 1,200 level prior to mining,” Kaip wrote following Pretium’s press release.
“In our view, [Pretium] provided a [fourth quarter] production update lacking in details, raising more questions than answers and increasing grade uncertainty at the Brucejack mine. It is too early to be impairing grades at Brucejack, but short of details — questions remain,” he added.
Pretium had expected to produce 504,000 oz. gold annually for the first eight years of the mine’s 18-year mine life, at an all-in sustaining cash cost of US$446 per oz. gold.
The company’s president and CEO Joseph Ovsenek told The Northern Miner in mid-October that he believed the mine was “well on its way” to becoming a 500,000 oz. gold producer.
Pretium reports that a “grade control program” will be operational during the first quarter, which is expected to “allow the blending of ore from the various stopes on a ring-by-ring basis to smooth out head grade to the mill.” Brucejack is now slated to hit steady-state gold production in mid-to-late 2018.
Gold bars produced at Pretium Resources’ Brucejack gold mine in British Columbia. Credit: Pretium Resources.
In late December, Pretium said it had applied to the provincial government to increase production rates at the mine by 41% to 3,800 tonnes per day. The company indicated the boost in mill capacity would cost around US$25 million. It said the approval process should take six to 12 months.
BMO analysts subsequently cut their price target on Pretium from $20 to $17.50 per share.
“We recognize [the company’s] hesitation on providing grade reconciliation data given that mining has exploited a small portion of the deposit, but grade is at the crux of an investment thesis for investors,” Kaip concluded. “The more visibility on reserve grade reconciliation, the more confidence investors will have.”
Pretium spent nearly US$811 million, including working capital, to get Brucejack up and running. The company had estimated a pay-back period of 2.8 years.
Pretium has 182 million shares outstanding and had US$38 million in cash in the end of 2017.
There could be another explanation. PVG is low-grading by design. She’s waiting for much higher Au/Ag prices. What would you do with the current macro background portending of a major bull leg? What other miner has the luxury of low-grading at 8 grams per ton?
what is this another rubicon???