Pretium Resources' Brucejack Mine Finally Delivers
Pretium Resources' Brucejack Mine Finally Delivers The Promised Numbers Peter ArendasJul. 9, 2018 8:01 PM ET Pretium Resources announced that the steady-state production was finally achieved. 111,340 toz gold were produced in Q2. The gold grade approached the 15 g/t level. 200,000-220,000 toz gold should be produced in H2 2018. Pretium Resources (PVG) announced its Q2 production numbers. The operating results are very good and finally in line with the feasibility study. In Q2, Pretium produced 111,340 toz gold and the gold grade climbed to 14.9 g/t. The gold recoveries remain very high, close to 98%. It is a very positive news and the market reaction was very positive as well. Pretium's share price jumped by 14% and closed the day at $9.3, which is the highest level since January, when the share price collapsed as a response to the surprisingly negative Q4 production results. If the gold price holds above the $1,250/toz level, Pretium's shares may reach the double-digit prices in the coming days. ChartPVG data by YCharts Back in April, I estimated that Pretium should produce at least 98,730 toz gold in Q2, assuming that it is able to sustain the March production volumes. But as the news release shows, the production kept on growing throughout the Q2. While there were 32,910 toz gold produced at Brucejack in March, 35,891 toz gold were produced in April, 36,978 toz in May and 38,471 toz in June (chart below). Actually, the 111,340 toz produced in Q2 is equal to an annualized volume of more than 445,000 toz gold. And the June production of 38,471 toz equals to an annualized volume of more than 460,000 toz gold. Source: own processing using data of Pretium Resources The gold grades experienced a significant improvement over the recent months, mainly due to the measures adopted by the management earlier this year. The measures include a new grade control program, new drills and an increased inventory of stopes available to feed the mill. As a result, the gold grades improved from 5.4 g/t in January to 16.6 g/t in April (chart below). The average gold grade reached the 14.9 g/t level in Q2. It is approximately in line with the proven reserves grade of 14.5 g/t gold. Source: own processing using data of Pretium Resources It is also important that due to the higher gold grades, Pretium was able to reach the very good production volumes even at lower throughput rates. The permitted throughput of the mill is 990,000 tonnes per annum (tpa) which equals to 2,712 tonnes per day (tpd). Although the mill is able to process more ore, the company must keep its annual volume of processed ore below the 990,000 t level. The throughput was well above the 2,712 tpd level in Q1 (chart below). However, a big part of this surplus was eliminated in Q2, especially in April when the mill operated only at the 2,441 tpd level. Source: own processing using data of Pretium Resources Pretium has also announced the H2 2018 production guidance. The company expects to produce 200,000-220,000 toz gold. The Q2 AISC is projected in the $710-770 range. If the Q2 production volumes are maintained, the upper limit of the interval will be broken. A little less positive is the cost guidance. Although $710-770 is a good number, it is a long way from the sub-$500 levels projected by the feasibility study. It is possible to expect that some cost optimization will be able to push the costs lower step by step, but they probably won't get below $650/toz, without growing the production volumes notably. However, this goal may be achieved after the mill is expanded. Back in December, Pretium submitted an application to increase the throughput from 2,700 tpd to 3,800 tpd, or by more than 40%. The permitting should be completed in H2 2018 and if successful, it is possible to expect that the throughput will be increased as soon as in early 2019. As stated by Pretium's CEO Joseph Ovsenek: If all goes really smoothly, maybe we get our 3800 ton per day permit a little sooner, we can ramp up quicker, but we are not banking on that. The plan is 3800 tons per day for January 1. The 3,800 tpd throughput rate would lead to an annual gold production of approximately 650,000 toz gold, at the Q2 gold grade of 14.9 g/t and gold recoveries of 97.7%. It is reasonable to expect a much lower AISC at such a huge production volume. What is the most important right now, the improved performance of the Brucejack mine significantly improves Pretium's chances to repay or refinance the debt and to get rid of the gold stream. The senior secured debt of $350 million matures on December 31, 2018, however, it can be extended by 1 year. The gold stream can be repurchased from Osisko Royalties (OR) at the end of 2018 for $237 million or at the end of 2019 for $272 million. The best solution would be to refinance the debt and repurchase the gold stream, ideally by the end of 2018. Conclusion Although the Q2 gold grades, recoveries, and production volumes were great and the share price experienced a nice jump, it will probably take several more quarters of similar operating performances to persuade the market that the Brucejack mine is a real deal and that the poor Q4 2017 and Q1 2018 were only an accident. Important catalysts that may help to push the share price higher will be the permits for the mill throughput expansion and any news regarding the debt repayment/refinancing or stream repurchase efforts. I expect Pretium's share price to reach the $10 level in the coming days and weeks and to break the highs at $12 by the end of 2018, if everything goes well. Disclosure: I am/we are long PVG. 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. https://seekingalpha.com/article/4186212-pretium-resources-brucejack-mine-finally-delivers-promised-numbers