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Pretium Resources' (PVG) CEO Joseph Ovsenek on Q4 2017 Results - Earnings Call Transcript

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Pretium Resources (PVG) Q4 2017 Earnings Conference Call March 9, 2018 10:00 AM ET


Joseph Ovsenek - President and CEO

Tom Yip - CFO


Rahul Paul - Canaccord Genuity

Ovais Habib - Scotiabank

Joseph Reagor - ROTH Capital Partners

Dan Rollins - RBC Capital Markets

Robert Reynolds - Credit Suisse

Justin Chan - Numis Securities


Thank you all for joining us this morning. Welcome to the Pretium Resources' Fourth Quarter and Year-End 2017 Conference Call. As a reminder, all participants are in listen-only mode, and the conference is being recorded. After the presentation there'll be an opportunity to ask questions. The conference call today is being webcast live along with the presentation slides on Pretium's Web site at pretium.com.

I will now turn the call over to Mr. Joseph Ovsenek, Pretium's President and CEO.

Joseph Ovsenek

Good morning everyone. Welcome to our fourth quarter and year-end 2017 earnings call, the first earnings call for Pretium Resources Inc. Participating on the call with me today will be our CFO, Tom Yip.

Before we discuss our results, I will start off with this comment on safety. On February 25th, there was an incident at one of the Brucejack Mine support camps located to the east of Brucejack and operated by our long-time First Nations partner, Tsetsaut Ventures Limited. The incident, which is still under investigation resulted in the death of one of their employees. We offer our sincere condolences to the family and to their community. Safety is our highest priority and we will continue to focus our energy and commitment to improve our health and safety performance, and ensure that Pretium employees as well as those of our contractors work in a safe and respectful environment.

Turning to our results now, we will begin with a review of the

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Comments (18)

TheJollyGreenMan profile picture
Good to see that management has realised that the orebody model is just an estimate and that the grade control model with more data points is the next best thing to what is actually in the ground. Ideally, you would like to schedule the operation with the better definition grade control model six months in advance. Despite the fancy terms and jiggery-pokery that goes into the construction of the orebody model, it is just an estimate and not actual reality.

I have seen that some operators use the term short-term definition and verification drilling instead of grade control drilling. It is a bit of a mouthful but sums up the actual process better IMHO.
It is hard to read between the lines to know what is really going on in these early days. I am not at ease about the whole valuation procedure but agree I might be something of a Cassandra. Predicting the grade of mill feed is a parlour game managers have played for years. You can generally smooth things out over a month if you can sweeten the month end few days with some high grade. Maybe management here is trying to be too precise.
Brian— Maybe—but my take is that management has concluded there likely is a huge resource-wide grade shortfall and is going through the playbook on how to deal with it. And one way to put the best face on it is to talk about how we are going to reach production targets, and hoping no one wants to talk about the mine life. The big bummer would be if the low targets are missed. Then there really isn’t anything to talk about except how best to pick up the pieces.
Thanks Tom for the intelligent comments. I do not expect to ever visit VOK so rely on the released information. It strikes me that there is more to be wrung out of the structural geology than we hear about. Leaving the engineers and planners to mine the numbers produced by an untested grade control program could be disastrous,
Brian—ultimately, either the grade is there resource-wide or it isn’t. Poking around to get the mined grade up to the overall model grade only works for so long. Then you run out of high grade spots, and mine life is way too short. As an investor I would be happier if the company was telling me that the blocks we are mining are coming in at 100% of the model, even if the amount of gold we recover each year was and will be variable because of our mine plan. But they are fixated on getting the recovered grade to a steady state number and keeping it there. But not telling us how much of the (limited) high grade stuff has to be salted in to get there. Unless you know how the grade is working out versus the model on the blocks being mined, then you really don’t know the size of the resource or the mine life.
And while O said that he thought the recovered grade would get to the overall model grade number, that (1) seems inconsistent with the announced target production, which will hit “steady state” in H2 and (2) is meaningless unless the mined grade is reconciled to the model’s predicted grade for the same blocks as were actually mined.
What O seems to be saying is that not only are we going to salt in more high grade blocks than the original plan, but we have to test them first because we now know that some of them don’t have the high grade that the model predicted. But who knows, maybe the market will reward them if the production gets to 500k per year, even if to do that daily production has to be increased 30%, the mine plan high-graded and mine life shortened dramatically. But I don’t think so. Sooner or later they will have to come clean on the recovered versus model grades on the blocks mined.
Tom Luongo profile picture
Agreed on all of your points, but at $6.50-$7 per share and $1300 gold is the price not already reflective of this scenario?

Let's assume that 'execution' is not the only culprit here. That this is as good as it gets. What's Fair Value at those numbers?

If it's close to current prices then this is a buy here. Regardless of where your initial tranche was bought at.
Tom—yes, probably a 10-12 usd name. But if it comes in lower (and it could, as it sounds like Q1 was like Q4, and they are relying on improved “grade control” for the H1 target), then bets are off. We will see. But it will take time, as they won’t tell us about grade reconciliation for a year.
The SP was in the 12s and is now in the 6s. So people expect net income going forward to be approx 50% of what they had previously assumed. That's quite a drop. TAHO fell 50% when its mine in Guatamala was shut down and, the way things are going there, it may never reopen. Things are bad at PVG but really that bad? If investors believe so they should stay away, if not now is probably the time to buy.
Tom Szabo profile picture
If the situation is just normal teething pains at VOK then you are right, PVG will recover to some level consistent with their expected long term profitability. Buying around these levels would then probably work. But if the model and mine plan are bad, it's a worse situation as they may not be in a position to repay the debt and in that case more pain lies ahead. We won't know about the model until at least the end of the year (assuming even then) when they have said a grade reconciliation will be provided. On the other hand, the stock is oversold so a rebound of some size will probably take place. That's a technical call and has little to do with the mine's performance.
Unfortunately almost all PM miners are Risky Business. Look at ABX - one of the biggest ( or THE biggest?) gold miner - down from $20 to $11. If you play the game, you have to accept the large potential for risk.
It is a pity that transcripts of these exchanges with management are never edited so we readers get a poor impression. The cost would be minimal.

One useful measure of the effectiveness of mining vein deposits of gold is to calculate the ratio of 'total ounces recovered per linear foot of lateral development per time unit', usually a year. For the Abitibi area there were rarely dividends when the ratio fell below about five. The highest I found was for the Independence mine at Cripple Creek in Colorado where the ratio topped 10.

At PVG. the expected ratio you can estimate roughly from the 43-101 is in the range of 16 to 20. While the VOK deposits is of outstanding quality, the ratio looks surprisingly large. Now we learn the development rate is to be increased by the addition of an extra unit.
The capital cost of this unit plus that of the extra drills for ring drilling must be beginning to look like serious money.

There is clearly a lot of learning going on; I am confident the problems will be overcome in time. I continue to hold off buying into the situation again until we can see the road ahead with greater clarity.
Tom Szabo profile picture
This is NOT a vein deposit. The grades are scattered so ounces per foot is going to be all over the place. But interesting you bring up Cripple Creek. Although they had more continuity with actual veins compared to VOK, the grade distribution was often very skewed and in fact there are a number of subtle structural controls on the deposits there including the kind of sigmoidal weaving of visible gold stringers in mineralized corridors that is only possible to identify and follow with great effort using a very selective mining approach. It took them a bunch of time to figure that out in the old days, and even as an open pit the operation today has a very serious grade control process that utilizes a very strong understanding of the geology to mine successfully. Compare this to Pretium, where they just keep regurgitating that it's a bulk mine so is just sort of needs the ramp up to be executed upon and everything will be hunky-dory. No details behind it, and "execution" has been set up as the fall guy if they don't succeed, so the problem won't be the block model, the resource or the mine plan, it's going to be "execution".
watersportz1 profile picture
"Our production results today and from our great control program shows that we are on track for achieving H1 guidance overall but here in Q1 we're still in ramp up mode with respect to be able to benefit from grade control."

This sounds like they hope to hit the low end of the range if they can get their act together. I am expecting less than 150K ounces.
F—i was expecting a little more than a regurgitation of Os interview of a couple of weeks ago. Again, the problems were described as “contributing to” the grade shortfall, and the new grade control/mine plan efforts “are expected to” help (but not solve the problem). Too coy and almost misleading. Really saying nothing, and giving no substantive reasons why things were bad or will get better. A bit of short covering today and this week. But market still understandably in show me mode. And here we are in mid-March, and the report gives no additional confidence in hitting the H1 production. So it does sound like the grade in Q1 is still way short, and that they are counting on Q2 to get to the low end. Bad.
I'm hoping the stock goes up a little more, and then I'm out with a loss. I'm done with their BS and can put the money into other stocks run by competent people.
Yeah, I agree. Why not describe progress in Q1 to date of the call ?
It is probably not better than the 8.2 g/T grade of Q4. Keeping mum means no improvement to me.
Tom Szabo profile picture
"Going forward, we'll report great reconciliation on an annual basis." I assume it meant "grade" but still, they are gonig to report the most critical thing that the market is looking for, on an ANNUAL basis only?
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