Pretium Resources' Q1 In Line With The Guidance, But Some Questions Remain

Summary

• Pretium Resources produced 82,888 toz gold in Q1.
• The AISC increased to $996/toz.
• Due to the lower production volumes and higher costs, the financial results worsened.
• The new mine plan is much less ambitious than the old one.
• At the Q1 production rate, the 2020 guidance should be met; however, the new mine plan target not.

Pretium Resources (PVG) released its Q1 2020 financial results. This time, the expectations were much lower. In February, Pretium released the 2020 guidance that envisioned production of 325,000-365,000 toz gold at an AISC of $910-1,060/toz. The guided numbers were a major disappointment as they were well below the mine plan updated only several quarters earlier. A new, more conservative mine plan was prepared in March. For now, it looks like the 2020 production target should be met. But the target set in the new mine plan not.

The Q1 2020 gold production equaled 82,888 toz. It is 4.7% more than during the same period of last year, but almost 14% less than in Q4 2019. The main reason for the decline was lower average throughput rate (3,793 tpd vs. 4,065 tpd) and lower mill feed grade (7.8 g/t gold vs. 8.3 g/t gold). The gold recoveries remain stable, in the 96%-97% range. Should Pretium maintain this production rate, its total 2020 production would equal 331,552 toz gold, which is in line with the guidance.

Source: Own processing, using data of Pretium Resources

The production costs increased quarter-over-quarter. The Q1 total cash cost equaled $787/toz, the AISC equaled $996/toz and the total cost of sales equaled $1,112/toz. Compared to Q4, the costs increased by 13.7%, 15%, and 15.7% respectively. The costs climbed to the highest level since Q1 2018. However, they are in line with the 2020 guidance that outlines an AISC of $910-1,060/toz gold.

Source: Own processing, using data of Pretium Resources

Pretium's average realized gold price increased to $1,605/toz, which means an 8.4% improvement in comparison to Q4. The increased gold price was able to mitigate the negative impact of the 13.7% decline in the volume of gold sales and the Q1 revenues decreased only by 6.6% to $126.6 million. However, due to the increased production costs, Pretium's operating cash flow experienced a more dramatic decline. It declined by 20.6% to $52.5 million. Also the net income experienced a steep decline, from $20 million to $6.2 million. EPS declined from $0.11 to $0.03. Adjusted earnings (adjusted for $17.4 million in deferred income tax expense and other items worth $2.25 million) equal $25.9 million and adjusted EPS equals $0.14.

Source: Own processing, using data of Seeking Alpha and Pretium Resources

Pretium's cash position improved from $23.2 million to $40.6 million. The volume of total debt decreased from $478 million to $449.5 million and net debt decreased from $454.8 million to $408.9 million. After the end of Q1, Pretium further improved its cash position by drawing down $16.5 million from its revolving loan facility.

Source: Own processing, using data of Seeking Alpha and Pretium Resources

The good news is that Pretium's mining operations haven't been impacted by the coronavirus crisis too much. The mining still continues; however, some other activities, including exploration and expansion drilling, were stopped. By now, the adopted measures had only a modest impact on Pretium's production costs. As a result, Pretium reiterated its 2020 production guidance of 325,000-365,000 toz gold at an AISC of $910-1,060/toz.

Probably the most important event of Q1 was the new updated mine plan for the Brucejack mine. This one is much less ambitious than the old one. The volume of reserves declined from 6.4 million toz gold at a gold grade of 12.6 g/t to 4.2 million toz gold at a gold grade of 8.4 g/t. Due to the significantly lower gold grades, the average annual gold production should be only 311,000 toz gold (instead of 441,000 toz gold), and the AISC should be $743/toz gold (instead of $539/toz gold).

Source: Pretium Resources

Somehow worrying is the fact that according to the new mine plan, 358,000 toz gold should be produced this year. In Q1, 82,888 toz gold were produced. At this rate, the 2020 production should be around 332,000 toz gold. Although it is in line with the 2020 guidance, it is almost 8% below the new mine plan target. There are still three quarters left and the gap may be filled relatively easily, all that is needed is slightly higher gold grades. However, given Pretium's history, the Q1 production volume may be quite unnerving for some investors, and questions regarding the reliability of the newest mine plan prevail.

Another important event occurred after the end of Q1, on April 27. Pretium announced that Jacques Perron was appointed as a new president and CEO. Jacques Perron is the former CEO of Thompson Creek Metals (the developer of the Mt. Milligan mine, in 2016 acquired by Centerra Gold (CAGDF)) and St. Andrew Goldfields, and the former senior vice president of Iamgold (IAG).

Pretium's share price was relatively stable in early Q1. Then the surprisingly low 2020 production guidance was released and the share price tanked. The early March market collapse didn't help either and Pretium's share price reached a new multi-year low at $4.05. But the gold and stock market recoveries helped to push the share price back to the $8 level. Right now, it trades around $7.6. The RSI is neutral, around the level of 50. But the share price just declined below the 10-day moving average and it seems like a head and shoulders reversal pattern is being formed. It will be completed if the share price declines below $7.29. After this, the next support level is in the $5-5.5 area. Given the current gold and stock market development, the probability of re-testing of this support seems to be relatively high in the near-term.

What I like about Pretium's Q1:

• Net debt declined.

What I don't like about Pretium 's Q1:

• Gold production declined significantly.
• AISC increased significantly.
• Operating cash flow and net income declined.
• The new mine plan is much less ambitious than the old one.

Analyst’s Disclosure: I/we 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.

Comments

[tin1]

The Brucejack deposit by its nature, doesn't allow the stock to be a dependable investment. It may be a great trade at certain times but I held for years and finally bailed right before the last crash in 2019. Much better investments out there in the gold venue.

[Peter Arendas]

Yes, Pretium delivered much more profits to traders with good timing than to patient shareholders.

[seekir]

Good article. I would appreciate if you write a general update on gold mining in the golden triangle that is known for its tricky geology. There are some news out from Seabridge, Auryn, Skeena, and others.

[Peter Arendas]

I'm not sure whether a single article is a good idea, as there are too many different companies. But for example this week I wrote (besides this article) also an article about Seabridge (seekingalpha.com/...). Last month, I wrote about Ascot (seekingalpha.com/...). Skeena is on my radar too, I intend to write an article soon.