Pretium lands US$540M to build Brucejack

VANCOUVER — Pretium Resources (TSX: PVG; NYSE: PVG) is proving that struggling equity markets and global economic woes can’t keep a good project down. On Sept. 15 the company announced terms for a US$540-million construction financing that sets the stage for commercial production at its high-grade Brucejack gold property in northwestern B.C.

The capital raise provides access to US$340 million at closing and will fund a “substantial portion” of the costs to develop an underground operation on Pretium’s Valley of Kings and West zones.

Orion Mine Finance and Blackstone Tactical Opportunities will provide the cash, which is comprised of a US$350-million credit facility; US$150-million prepayment under a callable gold and silver stream agreement; and a US$40-million private placement.

The streaming component applies to 8% of life-of-mine precious metal production of 7.1 million oz. refined gold and 26.3 million oz. refined silver. Orion and Blackstone also signed up for an offtake agreement wherein they will buy gold based on prevailing market prices.

“We always focused on a financing that featured 50% debt and the rest a split between a metal stream and equity. We ran an internal process to figure out the ideal structure, and it was important we maintain the buy-back right on the stream, and cap the number of ounces,” Pretium president Joseph Ovsenek says during an interview.

“The big difference over the past four years is that we could have had more competitive attention from the equity markets, but there remains a lot of debt available. We’re fortunate with the high-grade nature of the deposit because it created that competition on terms and rates,” he added.

Pretium has a couple of options in terms of buying back the stream and offtake components.

The company can repurchase 50% or 75% of the off-take at the end of 2018 for $11 per oz., or at the end of 2019 for $13 per oz. remaining gold to be produced. Most of the metal streams can be bought back for US$237 million in 2018, or for US$272 million in at the end of 2019. Pretium can also lower the stream to 3% by paying US$150 million in 2018, or to 4% by paying US$150 million in 2019.

Regarding the equity, Orion and Blackstone will both subscribe for 3.8 million Pretium shares priced at US$5.20 per share.

The financing follows on the heels of Pretium securing its mine permits. In March the company scored its environmental assessment certificate from the B.C. Minister of the Environment and Minister of Energy and Mines, while the Federal Minister of the Environment delivered a positive decision in July.

Pretium’s current mine plan is based on a feasibility study the company released in mid-2014 that envisions a US$747-million development featuring a 2,700-tonne-per-day gravity and flotation plant.

Brucejack would produce 404,000 oz. gold annually over an 18-year mine life at all-in sustaining cash costs of US$448 per oz. Assuming a US$1,100 per oz. gold price, the project features a US$1.5-billion post-tax net present value at a 5% discount rate, and a 28.5% internal rate of return.

The crown jewel at Brucejack is the high-grade Valley of Kings deposit, which hosts high-grade gold mineralization in a broad, deformed stockwork. The company hit a milestone in 2013 after a 10,000-tonne bulk sample that confirmed both lateral and vertical continuity of the vein systems comprising the stockwork, and the location of high-grade mineralization corridors. The Valley of the Kings remains open to the east and west along strike and at depth.

Proven and probable reserves at the Valley of Kings total 13.6 million tonnes grading 15.7 grams gold per tonne and 11 grams silver per tonne for 6.9 million contained oz. gold, and 4.6 million contained oz. silver.

These reserves would account for the first decade of Brucejack’s life, while the lower-grade West zone would account for the balance. West hosts 2.9 million proven and probable tonnes of 6.9 grams gold and 279 grams silver for 600,000 contained oz. gold and 26 million contained oz. silver.

“We have most of the funding in place, and the feasibility study figure was based on much higher Canadian dollars, so we’re likely looking at a better currency market for mine building,” Ovsenek says. “We’ve also advanced the project as we’ve waited for permits, and some of that has been paid for out of those capital expenditure dollars. We’ve seen some drop in oil, cement and steel prices, though labour costs haven’t really changed. On the material side it’s a great time to build a mine, because there aren’t that many competitors in development.”

The development is a big win for B.C.’s mining industry, since miners active in the province have seen a number of large-scale development projects stall in recent years due to permit complications.

Taseko Mines (TSX: TKO; NYSE-MKT: TGB) failed to pass the regulatory finish line at its New Prosperity copper-gold project, 125 km southwest of Williams Lake; while Pacific Booker Minerals (NYSE-MKT: PBM) is stuck in a permitting quagmire at its Morrison copper-gold project, 65 km northeast of Smithers. A tailings dam failure at Imperial Metals’ (TSX: III) Mount Polley copper-gold mine last year further muddied the regulatory waters.

Other B.C.-based projects face infrastructure and financing hurdles that could make development challenging over the near-term. For example, Seabridge Gold’s (TSX: SEA; NYSE: SA) Kerr-Sulphurets-Mitchell bulk-tonnage copper property received its construction permits in late 2014, but the mine would cost more than  US$5 billion to develop.

Brucejack sits 275 km northwest of Smithers, and a mine there would create 900 jobs during construction and 600 full-time jobs during production.

“From a developer’s angle the permitting is never quite as quick as you want it, but the fact we received our environmental assessment certificate in just over two years is pretty good in this day and age,” Ovsenek says.

“The small footprint of the project definitely helped, and following some trade-off studies, we opted to go with flotation and gravity — so we weren’t dealing with any cyanide. That definitely helped since the Mount Polley situation, and the concerns surrounding tailings ponds. I really think if we had a significant dam or something similar, we wouldn’t have moved through the process as quickly,” he adds.

Pretium hasn’t slowed down development at Brucejack as it waits on permits. The company closed a US$81-million “strategic financing” with China’s Zijin Mining Group in late 2014 to fund capital expenses, including procuring long-lead items and camp infrastructure. Pretium is in the midst of a 40,000-metre preproduction drill program, with bulk earthworks and transmission line construction underway.

Ovsenek adds that Pretium’s focus is delivering Bruejack “on time and on budget,” but the company is also optimistic about exploration upside across a regional property package that encompasses over 100 sq. km.

In May the company negotiated a $6-million private placement, wherein it issued 685,700 flow-through shares priced at $8.75 per share. The proceeds will fund between 10,000 metres and 15,000 metres of grassroots drilling this year, which will target geophysical anomalies east of the Valley of Kings.

“The grassroots exploration is really exciting fo
r us, and we feel that aspect of the story can get lost at times due to all the excitement surrounding the mine. We have a big claim package, and the Valley of the Kings is on the western margin … to the east we have a lot of potential, and we felt it would be beneficial to keep our exploration guys in the field while we build,” Ovsenek said.

On Sept. 21 Pretium released assays from a drill program at the Flow Dome zone, east of Brucejack. The company says high-grade intersections — along with long intervals of low-grade mineralization — suggest a new stockwork zone, or an extension of the Valley of the Kings. 

The second area of interest is the Kitchenview target, which was also identified as “a potential porphyry and epithermal-style mineralized zone.”

Highlights from the Flow Dome include: 21.87 grams gold over 9 metres, including 203 grams gold over 0.5 metre, from 930 metres deep in hole 657; 16.9 grams gold over 1.5 metres from 877 metres deep in hole 654; and 6.2 grams gold over 2.4 metres from 778 metres deep in hole 658.

Pretium shares have traded in a 52-week range of $4.60 to $9.05, and jumped nearly 10% on the financing news to close at $7.18 per share at press time. 

The company has 133.5 million shares outstanding for a $952-million market capitalization.

“We’ve heard quite a lot in our investment talks about that market bottom, but in truth, you never really know. The one thing we continue to hear is that if you look at the funds, the generalist investor hasn’t come back yet. Some people hint that they’re starting to look, but looking and buying are two separate things. I think until gold sentiment changes the market is going to look like it does today, but if we stay at current gold prices, we’d still look good,” Ovsenek says.