What's Wrong With a Head Grade of 10g/ton? What’s Wrong with a Head Grade of 10g/ton?
Personally I would be thrilled if Pretium could maintain a head grade of 10g/ton for the life of the mine. I have previously cited numerous examples of mines with head grades less than 10g/tons that are operating at profit. For example, Kirkland Lake’s Holt mine is running 24/7/365 with a head grade of 5g/ton and I haven’t heard any news about the mine closing due to lack of profitability.
So let’s run the numbers for 3800tons/day and a head grade of 10g/ton. My back of the envelope calculations yields about 1180oz/day, and at $1300/oz that produces an amazing cash flow of $1,543,750.00/day, or for a 360 day year, a cash flow of $555,750,000.00. That’s a cash flow of over HALF A BILLION/YEAR! How many corporations can even dream of cash flows like this?
I know, cash flow is not profit. So let’s consider what I think is a worst case scenario - AISC of $1000/oz. At 1180oz/day the mine will produce about 424,800oz/yr with a total AISC of $424,800,000.00. That leaves a profit of $132,700,000.00/yr or earnings of about $0.64/sh. Not bad for a worst case scenario using a head grade of 10g/ton and an AISC of $1000.00/ton. At the current share price ($7.00) this yields a P/E of about 11. Compare this to Kirkland Lake’s P/E of almost 27.
Of course there are nay-sayers who will say they’ll never get to 3800tons/day. All I can say is that Pretium’s management team, by bringing this mine into production, ahead of schedule and under budget, have demonstrated operational capabilities that are above and beyond most of the industry. Getting to 3800tons/day will be a no-brainer for this team and anyone who thinks otherwise must have their head stuck in a warm dark place.
Remember folks, this a worst case scenario. For your own amusement, try running the numbers with a head grade of 12g/ton and an AISC of $800/ton.