Pretium Resources produced 90,419 toz gold in Q2 2020.
The revenues, operating cash flow, and net income reached new record highs.
The EPS climbed to $0.18 and net debt declined by 20%.
The 2020 production guidance was reiterated; however, the cost guidance was slightly increased, due to the COVID-19-related costs.
The market reacted to the Q2 financial results by sending Pretium's share price 25% higher.
Note: This article was amended on 8/7/20 to reflect the inclusion of Q2 figures as part of the article's charts.
Pretium Resources (NYSE:PVG) is another mid-tier gold miner that released its Q2 2020 financial results. While New Gold (NYSEMKT:NGD) slightly disappointed, Evolution Mining (OTCPK:CAHPF) did well and Kirkland Lake Gold (KL) maintained its high standards despite the coronavirus impacts, Eldorado Gold (EGO) did really well. Pretium Resources belongs to Eldorado's category, as it did really well too. Pretium didn't experience any production disruptions, and therefore, it was able to fully benefit from the strong gold prices. The market welcomed the results by sending Pretium's shares 25% higher. It is a nice change to see Pretium's shares gapping up instead of down, following a financial results release.
In Q2 2020, Pretium produced 90,419 toz gold. It is 9% more than in Q1 and in line with Q2 2019. Pretium operates only one mine, the Brucejack mine. Probably everyone who is not completely new to gold mining investing knows the bumpy history of the project. Therefore, it is always interesting to take a more detailed look at the operating performance of the mine. As can be seen, in Q2, the mill feed grade improved to 8.9 g/t, which is the highest level since Q3 2019. The good news is that over the last six quarters, the gold grades have been relatively stable, moving in the 7.8-9.1 g/t range. The gold recoveries remain stable at around 97%, but the recoveries have never been an issue. Slightly less positive is the decline in the Q2 mill throughput rates. While in Q1, the mill operated at throughput rates of 3,793 tpd, in Q2, it was only 3,596 tpd. Fortunately, the improved feed grades were able to more than compensate for the decreased throughput rates.
Source: Own processing, using data of Pretium Resources
While the production volume increased, the production costs decreased. The total cash cost declined from $787/toz gold in Q1 to $749/toz in Q2. It represents a 4.8% decline. The AISC declined from $996/toz to $911/toz, or by 8.5%. Only the total cost of sales remained almost unchanged, as it decreased from $1,112/toz to $1,109/toz.
Source: Own processing, using data of Pretium Resources
The average realized gold price climbed to $1,738/toz in Q2. It is 8.3% higher than in Q1. The improved production volumes and gold prices resulted in a significant jump-up in the revenues. They experienced a 31.6% quarterly growth to $166.6 million. It is the highest level Pretium has ever reached. The same can be said also about operating cash flow that climbed to $92.1 million. It represents a more than 75% increase compared to the previous quarter. Pretium's free cash flow increased from $34.4 million in Q1 to $82.7 million in Q2. Also the net income experienced impressive growth, from $6.2 million in Q1 to $32.3 million in Q2. The Q2 EPS equaled $0.18. After annualizing, it leads to a price-to-earnings ratio of 17.42. On a TTM basis, the P/E ratio equals to 35.83.
Source: Own processing, using data of Seeking Alpha and Pretium Resources
Pretium's cash position improved notably, from $40.6 million as of the end of Q1 to $124.7 million as of the end of Q2. The total debt remained almost unchanged around $460 million. It means that the net debt declined to $335.2 million, or by slightly more than 20%. As can be seen in the chart, Pretium's net debt keeps on declining quarter after quarter despite the problems the company had to deal with over the recent years. In this respect, Pretium's management is very successful.
Source: Own processing, using data of Seeking Alpha and Pretium Resources
The chart below shows the evolution of three Pretium's valuation metrics (the data are calculated on the TTM basis and using the closing share price at the end of each period). As can be seen, despite today's 25% jump in the share price, which reacted very positively to the Q2 financial results, Pretium's valuation remains at reasonable levels. Although the price-to-earnings ratio of 35.83 is quite high, the price-to-operating cash flow at 8.11 and price-to-revenues at 4.17 are reasonable. Moreover, if one calculates these ratios using annualized Q2 results (price-to-earnings ratio = 17.41, price-to-operating cash flow ratio = 6.35, price-to-revenues ratio = 3.51), it is possible to say that Pretium is relatively cheap. Especially given the fact that right now, the gold price is much higher than the Q2 average realized gold price.
Source: Own processing
Pretium reiterated its 2020 production guidance of 325,000-365,000 toz gold. As 173,307 toz gold were produced in H1, 151,693-191,693 toz should be produced in H2 to meet the guidance. It equals to 75,847-95,847 toz gold per quarter on average. What is less positive, Pretium expects that due to the COVID-19-related costs, the 2020 production costs will be higher. The cash cost guidance was increased from $725-830/toz to $750-860/toz, and the AISC was increased from $910-1,060/toz to $960-1,120/toz. The AISC should be higher also due to the projected sustaining CAPEX that was increased from $30 million to $40 million.
Pretium also announced that a grassroots exploration campaign is underway. It will focus on the A6 Zone of the Bowser claims. The aim is to discover Eskay Creek-style volcanogenic massive sulfide deposits and high-grade, epithermal-related gold systems. The exploration campaign should also include 10,000 meters of drilling.
Pretium's share price reacted to the Q2 2020 financial results by jumping up by 25%. It pretty much disrupted the overall technical picture. The RSI increased to 80, which is an extremely overbought level. Moreover, a gap was created between $10.07 and $11.05. The share price failed to break the resistance near $12.9 (although it briefly got to $13.07, it came back down and closed at $12.54). Some correction should be expected in the coming days. However, if the gold price stays above $2,000/toz, it is possible to expect Pretium to attack the resistance at $12.9 and later also at $13.8. Pretium's historic high was set back in 2012 at $18.43. If the Q3 gold production surpasses the 90,000 toz level again, and if the gold prices remain above $2,000/toz, I can see Pretium setting a new record-high by the end of this year.
What I like about Pretium's Q2:
- Gold production increased.
- Revenues, operating cash flow, and net income increased significantly.
- The net debt keeps on declining.
What I don't like about Pretium's Q2:
- The 2020 cost guidance was increased.
Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in PVG over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.