Pretium’s Brucejack nets ‘steady cash flow’

In 2011, Pretium Resources (TSX: PVG; NYSE: PVG) shares skyrocketed on some of the most extraordinary gold and silver grades ever reported in B.C.’s Golden Triangle. An early assay from the company’s Brucejack project, 1,000 km north of Vancouver, returned an eye-watering 41,582 grams gold per tonne.

But in late 2012, doubt started to take hold about the continuity of those grades, when an early resource estimate was criticized for smoothing out the grades in the nuggety Valley of the Kings deposit.

Australian firm Snowden Mining Industry Consultants updated its resource estimate at Brucejack in 2013, and AMC Mining Consultants defined a probable reserve of 6.6 million oz. gold in 15.1 million tonnes grading 13.6 grams gold.

A feasibility study done the same year by Vancouver-based consulting and engineering firm Tetra Tech showed potential to mine 321,500 oz. gold annually over a 22-year mine life, starting in 2016. Still, Snowden recommended that Pretium conduct a bulk-sample program to confirm the grade.

Then-CEO Robert Quartermain and the management team tried to assuage concerns about grade continuity by hiring Strathcona Mineral Services to conduct the bulk-sample program. The Canadian firm had discovered the flaws in Bre-X’s infamous Busang project.

Pouring gold doré in June 2017 at Pretium Resources’ Brucejack gold mine in British Columbia. Credit: Pretium Resources.

Strathcona’s report was expected to reconcile the assay results from its bulk-sample program against the resource estimate prepared by Snowden, which was based on exploration drilling at Brucejack.

On Oct. 8, 2013, Strathcona walked away from the project with limited, preliminary assay results from its sample tower program — which sampled portions of the 10,000-tonne bulk sample, and questioned the 22-year mine life determined by Tetra Tech. In a Pretium news release, Strathcona was quoted as saying that “there are no valid gold mineral resources for the VOK Zone, and without mineral resources there can be no mineral reserves, and without mineral reserves there can be no basis for a feasibility study.”

Pretium’s shares cratered from a high of $17.92 on March 3, 2012, to $3.26 in November 2013, a month after Strathcona walked away from the project.

Snowden stood by its numbers.  Mill results for the 10,000-tonne bulk sample returned 5,865 oz., which validated Snowden’s mineral resource estimate. It was clear that Brucejack would become a mine.

A June 2014 technical report by Tetra Tech put the reserve grade at 16.5 million tonnes grading 14.1 grams gold.

Brucejack started commercial production on July 1, 2017. But by late 2018, the quantity of gold the mine was churning out fell short of Tetra Tech’s production models.

Earlier this year, Pretium announced an updated life-of-mine plan for producing 3,800 tonnes per day (a 40% increase from the previous mine plan), with Brucejack’s 16-million-tonne reserves grading 12.6 grams gold, and a 14-year mine life.

Despite the setbacks, Brucejack is still one of the highest-grade gold mines in the world, and Pretium has turned a profit every quarter since graduating to commercial production. Pretium has generated US$359 million in cash flow — a number no other mid-tier gold producer can match over the same period.

Through the first half of 2019, Pretium posted US$33.5 million in adjusted earnings, or US18¢ per share, and US$81.1 million in cash flow.

The market has rewarded the company with a $3-billion market cap.

“It feels great to be in production and generating steady cash flow,” Pretium’s president, Joseph Ovsenek, wrote in an email to The Northern Miner after a recent presentation at a Red Cloud Securities conference in Toronto.

“We don’t look behind. Instead, we focus on continuing to refine operations at Brucejack and building the company.”

Warwick Board, Pretium Resources’ chief geologist, inspects a sample while conducting regional exploration at the Brucejack gold project in British Columbia. Credit: Pretium Resources.

Ovsenek replaced Quartermain as CEO in January 2017. Quartermain is set to retire as executive chairman at year-end.

In September, Pretium announced that with its “robust cash flow,” the company has repurchased all of its gold offtake agreement.

During his presentation at the Red Cloud Securities conference, Ovsenek said the company is also “looking to be clear of our debt sometime in 2021, depending on gold prices.” (Pretium still owes US$415 million in bank loans, which are due in December 2022.)

Ovsenek told The Northern Miner that Pretium would consider buying back a 1.2% royalty on gold and silver to Franco-Nevada (TSX: FNV; NYSE: FNV), but there is “no right to repurchase.”

In the meantime, Pretium is focused on ramping up production and lowering costs.

This year, Brucejack is expected to average 3,500 tonnes per day at an average head grade of 10.4 grams gold. The mine is permitted for a 3,800-tonne daily production.

All-in sustaining costs (AISCs) in the first half of 2019 came in at US$905 per oz. gold, but Ovsenek said this would improve in the coming months.

“As production picks up through the second half of the year, and we keep a sharp focus on costs, we expect our all-in sustaining costs [for 2019] to be in the range of US$775 to US$875 per oz. gold sold,” Ovsenek said.

The mining executive also confirmed that the mine’s AISCs should fall to an average of US$535 per oz. over the next eight years.

The Brucejack project, located in the Valley of the Kings in northern British Columbia. Credit: Pretium Resources.

The Valley of the Kings deposit has proven and probable reserves of 13.1 million tonnes grading 13.8 grams gold per tonne and 10.7 grams silver. The West Zone deposit has proven and probable reserves of 2.9 million tonnes grading 6.9 grams gold per tonne and 279 grams silver.

But the company’s geologists are looking for more, and results from deep underground exploration drilling this year have confirmed the potential to find a porphyry deposit at depth.

One promising 1,677-metre hole drilled under Brucejack’s Valley of the Kings deposit to the northeast intersected two zones of anomalous copper and molybdenum mineralization at depth.

Hole 2019, drilled 85 degrees from the 1,130-metre level in the Valley of the Kings underground development, contained visible gold at 270 metres and 690 metres downhole, including 6.21 grams gold per tonne intersected over 3 metres.

The hole was drilled in an area uninformed by previous drilling, suggesting there could be an extension of Brucejack-style mineralization at depth below the mine, the company says.

The company has budgeted $10 million for grassroots exploration this year and expects to spend the same amount in 2020, unless something jumps off the page.

“We have an extensive land package — one of the largest in the Golden Triangle — and it makes good sense to explore for another mine on the land we have the rights to,” Ovsenek told The Northern Miner.  “If we continue to see success like we already reported from our A6 prospect, located about 14 km northeast of the Brucejack mine, I could see us increasing our budget to advance those high-priority targets.”

At the A6 Zone, the company is drill testing an area in the Iskut River formation that hosts the same stratigraphy as Skeena Resources’ (TSXV: SKE) Eskay Creek property, where the past-producing Eskay Creek mine once was.

Hole 38 in the zone intersected high-grade silver plus copper mineralization, with a 2-metre intercept of 0.95 gram gold, 2,890 grams silver and 1.81% copper.

When asked if Pretium plans to expand via acquisition, Ovsenek was noncommittal. “It depends on the circumstances. If an acquisition opportunity was available that complemented Brucejack we would take a hard look, but it would have to satisfy our requirements for return on invested capital,” he said.

Pretium’s land package is bordered to the west by Seabridge Gold’s (TSX: SEA; NYSE: SA) massive KSM copper-gold project and Skeena’s Eskay Creek property, as well as Eskay Mining (TSXV: ESK) claims; to the northeast by Tudor Gold’s (TSXV: TUD) Treaty Creek gold project; and to the north again by Seabridge.

Pretium has 185 million shares outstanding and trades in a 52-week range of $8.85 to $18.30 per share. At press time it was trading at $16.28.

As of Sept. 5, BMO Capital Markets’ analyst Andrew Kaip had an “outperform” rating and a 12-month target price of $24 per share, while Anita Soni of CIBC had a 12-month target price of $18 and a “neutral” rating as of Sept. 18.