Pretium Resources: A Controversial Gold Project With A Lot Of Potential

Mar.17.14 | About: Pretium Resources (PVG)


Pretium Resources and its Brucejack project, present some real potential for the next few years.

PVG survived a serious controversy regarding gold resources at the Valley of the Kings. The last 10,000 bulk sample's results were very impressive.

Gold price is going up since the beginning of 2014, and PVG is an excellent and unique opportunity to profit from this rise.

Pretium Resources, Inc. (NYSE:PVG) is a newly formed start-up company with a focus on gold. It owns the Brucejack project in Northwestern British Columbia, Canada, and is composed of six mineral claims totaling 3,199.28 hectares in area. The company owns another project called the Snowfield project (Gold and copper); It is not economical at the present gold price, and I will not mention it anymore in this article.

The stock price started trading on October 22, 2010. PVG trades in the NYSE (January 9, 2012), and Toronto Stock exchange.

"On December 21, 2010, we closed the initial public offering ("IPO") of 44,170,000 of our common shares at a price of $6.00 per share for gross proceeds of $265,020,000 and our shares commenced trading on the Toronto Stock Exchange under the symbol "PVG"."

Pretium Resources has now, fully diluted (including options) 114,893,000 shares on February 18, 2014.

The President and CEO director, Robert A. Quatermain and his team, and the recent appointed COO James Currie are a top-tier management with quality and experience, which is considered as a positive note for a development project of this size.

On the same gold miners' subject, I also published an article about Iamgold Corp.(NYSE:IAG), an article about Gold Resource Corp. (NYSEMKT:GORO) and also an article about Barrick Gold (NYSE:ABX) and Newmont Mining (NYSE:NEM).

(Click here to access the PVG Home site.)

1 - Pretium Resources Inc. and the Brucejack project.

Brucejack Project presentation. (The latest presentation on February 12, 2014.)

The Brucejack project is about 65 kilometers north of the town of Stewart in Northwestern British Columbia, Canada. It is a land package of over 103,000 hectares, mostly unexplored. The main focus of the Brucejack project is the Valley of the Kings' site. It is a high-grade and large-scale gold/silver project. Actually, about 200 employees are working on the site.

Here is the Brucejack geology - Structure from the PVG website.

Brucejack Geology.The Valley of the Kings presents an exceptional potential that seems unique, in my opinion. The PVG figures related to this particular development site come from the Mineral Resource estimate completed by Snowden Mining Industry Consultants ("Snowden") in June 2013, and Later perfected, in December 2013. The technical presentation on February 2014 is explaining in detail the method used by "Snowden" to get the resource estimated.

Here are the highlights of the PVG most recent findings on December 19, 2013. This updated resource estimate added and even increased the gold grade from the same study dating November 2012.

Gold resources in the Valley of the Kings (5.0 g/t gold-equivalent cut-off) total:

  • 8.7 million oz in the Measured and Indicated Resource categories (15.3 million tones grading 17.6 grams of gold per tone)
  • 4.9 million oz in the Inferred Mineral Resource category (With 5.9 million tones grading 25.6 grams of gold per tone).

These are some really impressive numbers; you must agree, which do not occur often in Canada. Yes, it is not a misprint the grade is 17.6 g/Ton with an inferred resource at 25.6 g/Ton. A new vein called Cleopatra was found recently.

Here are the 2013 drill results, including the new Cleopatra vein. (July 2013)

On February 3rd, 2014, the company released the last technical report NI 43-101 about the mineral resources of the Brucejack project.

There have been many controversies over the last year, about the technical interpretation of these drill holes' results, and what is truly expected at the Valley of the Kings/Brucejack. This topic is very sensitive for both shareholders and management. It is a vital element, in fact, that will eventually give the cash needed to advance to the production stage by 2016. Financing is the key and if the stock price is not showing the potential value of the site, it will be challenging to find the $663.5 million the company needs to survive and thrive.

2 - The controversy about the gold resource at the Valley of the Kings. "Snowden" versus "Faruqharson" opinion.

Pretium Resources engaged several separate consultants to evaluate and study the Valley of the Kings prospect during this event, which ended by the abrupt resignation of G. Faruqharson.

  • "Snowden": Well known service provider focusing on mining activities founded in 1987 with offices in Australia, South Africa, South America, Canada and London. The Company has been engaged by PVG (Along with Wardrop, a Tetra Tech Company) in 2012 as part of the feasibility study on the high-grade gold opportunity at Brucejack. "Snowden" engaged to prepare a high-grade Mineral Resource estimate for the high-grade gold and silver resources identified to date in the Valley of the Kings and West Zone.
  • "Faruqharson": Graham Faruqharson is the President of Strathcona Mineral Ltd. He was responsible for the sample tower operations at the Brucejack Project. G.Faruqharson was engaged by PVG as the independent qualified person to oversee and report on the 10,000-ton bulk sample for the Program at its Valley of the Kings until he resigned.

On October 9, 2013, Strathcona Mineral Ltd. and its president, Graham Farquharson, abruptly resigned from the project. It dealt a huge blow to PVG stock price, and the same day the stock price got pummeled almost 30%. This resignation raised a lot of uncertainties, and was not appreciated by investors and shareholders as well. Shareholder's sold-off because they started to doubt on the project's true potential. The stock price kept going down until November 19, with a low of 2.78. Look at the chart from October 1, 2013 to November 20, 2013.

Click to enlarge

PVG data by YCharts

On November 2013, Strathcona's Farquharson explained why his company and PVG had some serious disagreement that led to his resignation.

It is useless from an investor's perspective to enter the details that led to this unfortunate controversy, but basically, G. Faruqharson was not agreeing with the "methodology" used by "Snowden" and was far more cautious than PVG/Snowden about the resource at the Valley of the Kings.

Faruqharson was not totally negative so. In his interview, he said that the Valley of the Kings project presents an excellent chance to be a small-tonnage high-grade gold mine but nowhere close to the 425,000 oz of gold a year for the next 10 years indicated by PVG.

PVG regained some lost momentum in December 13, 2013, when it published the results of its 10,302 tones bulk sample, which yielded 5,865 oz of gold or a 42% increase compared to target potential (4,000 oz of gold). It was a relief for all shareholders.

Click to enlarge

PVG data by YCharts

3 - Chronology and sampling's results.

PVG fourth quarter and 2013 year-end results.

1 - October 2013, processing of the 10,302 tons bulk samples commenced at a custom mill in Montana in the USA.

2 - During October more drilling and underground exploration continued, with the discovery of the Cleopatra vein structure. On October 9, G. Faruqharson resigned.

3 - December 13, 2013 final results of the 10,000 tons bulk samples gave 5,865 oz of gold (from 10,302 tons). The results were 42% above estimates!

4 - December 19, 2013 the company is indicating measured and indicated Mineral Resources total 8.7 million ounces of gold at a grade of 17.6 grams of gold per ton, and inferred mineral resources of 4.9 million ounces of gold at a grade of 25.6 grams of gold per ton. These new estimates seem 20% higher than the earlier ones and are conservative if we compare to the December 13 bulk results.

5 - January 2014, 1,000 tons PVG sent to the custom mill in Montana that processed the material on February 24, 2014. The company is still waiting for the results. These samples are from to the Cleopatra vein. Another 1,000 tons permitted, and the company is evaluating the ideal high-grade target now.

The company said:

"The permitting process for an underground mine at the Brucejack Project is now underway. In late November 2013, Pretivm participated in five Open Houses conducted by the BC Environmental Assessment Office (EAO) as part of the first public comment period. We expect to submit our Environmental Assessment Certificate application in late March/early April and engage in the subsequent Provincial and Federal review process with a target of 2016 for commercial production."

4 - Conclusion.

Pretium Resources Inc. is a very good investing idea, in my opinion, but I will not invest a large amount of money here due to the risk and uncertainties about the real reserves. It is quite possible that PVG will be the next gold mine winner, if it can deliver on the company's recent estimate. The problem is that PVG will have to find the cash it needs to reach its 2016 target. An estimated $663.5 million is required, and financing will be a challenge after the last Faruqharson's move. I would love to read the "lengthy letter" that Strathcona's Faruqharson wrote to PVG. The stock recovered after the last encouraging results' bulk samples.

The bulk sample quality has convinced me that Faruqharson has been too conservative and over-prudent as well, although I do not discount totally what he has said. It is safe to say that there is a certain controversy about the reserves' amount at the Valley of the kings.

PVG management seems strong, focused and efficient, which is another good sign for the future. More, the mine is in Canada, which is a business-friendly country as we know.

We are waiting for the results of the next 1,000 tons bulk samples now, and I will be monitoring PVG. The ore samples have been already processed at the mill in Montana, and the company will release the results soon. They are mainly from the Cleopatra vein and should show some impressive grade again.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within 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.