Pretium Resources: The Gold Price Is A Great Spice
Summary
- Revenues for the first quarter were $125.56 million, up from $103.12 million in 1Q'19, with a net profit of $6.24 million, or $0.03 per diluted share.
- The Brucejack Mine produced 82,888 ounces of gold, and the company sold 80,460 ounces at an all-in sustaining cost of $996 per ounce of gold sold.
- Investors must trade PVG short term, and bet only a small portion for the long term.
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Image: The Brucejack -Source: Mining
Investment Thesis
The Vancouver-based Pretium Resources (NYSE: PVG) released its first-quarter results, and I was not impressed with the gold production indicated. However, a record-high gold price is helping the company significantly.
It is the balance that we will have to evaluate regularly to be able to invest successfully in this miner. Another risk attached to the mine now is the effect of the COVID-19.
So far, the company has been able to avoid the spread of the virus at the mine site, but it is a serious risk that we cannot disregard. If the company is forced to put the mine on care and maintenance, then revenues will be hurt very fast, and the stock will drop quickly. It is a significant threat for this gold miner with an income based on only one asset like Pretium.
The Brucejack mine is a great mine that produces excellent free cash flow, but to be able to keep the present valuation, as it is now, the company needs a gold price well over $1,650 per ounce, in my opinion. Below that value, the stock will quickly drop to a much lower valuation estimated at around $6.50-$7.00.
Thus, the investment thesis is quite simple and has not changed for years. Investors must trade PVG short term, and bet only a small portion for the long term until investors can safely trust what will be produced and make a reliable long term prevision. Furthermore, investors will have to trade the stock in correlation with the gold price, which adds more short-term volatility and could accentuate the recent cratering effect or boost the share.
Note: Again, in this article, I will not comment on the Snowfield prospect that the company owns.
Pretium Resources - 1Q'20 Results and Financial Snapshot
| Pretium Resources | 4Q'18 | 1Q'19 | 2Q'19 | 3Q'19 | 4Q'19 | 1Q'20 |
| Total Revenues in $ Million | 108.6 | 103.12 | 113.20 | 132.74 | 135.48 | 126.56 |
| Net Income in $ Million | 2.85 | 4.17 | 10.44 | 6.26 | 20.05 | 6.24 |
| EBITDA in $ Million | 36.51 | 33.76 | 42.63 | 60.32 | 63.71 | 57.35 |
| EPS diluted in $/share | 0.01 | 0.02 | 0.06 | 0.03 | 0.11 | 0.03 |
| Operating cash flow in $ Million | 42.89 | 39.94 | 41.18 | 77.81 | 66.13 | 52.54 |
| Capital Expenditure in $ Million | 6.58 | 5.40 | 7.29 | 14.65 | 16.78 | 10.83 |
| Free Cash Flow In $ Million | 36.3 | 34.5 | 33.9 | 63.2 | 49.34 | 41.7 |
| Cash and short-term investments in $ Million | 45.4 | 50.9 | 34.3 | 16.6 | 23.17 | 40.6 |
| Total Long-term Debt + Conv. note in $ Million | 624.4 | 612.7 | 572.1 | 497.6 | 463.92 | 449.5 |
| Shares outstanding (fully diluted) in Million | 183.9 | 185.0 | 185.5 | 186.7 | 195.6 | 195.3 |
| Gold Production K Oz | 4Q'18 | 1Q'19 | 2Q'19 | 3Q'19 | 4Q'19 | 1Q'20 |
| Gold ounce Production Oz | 96,342 | 79,180 | 90,761 | 88,227 | 96,237 | 82,888 |
| Silver Production in oz | 113,886 | 108,234 | 135,797 | 124,958 | 147,988 | 123,926 |
| Gold price realized $/ Oz | 1,204 | 1,257 | 1,252 | 1,486 | 1,480 | 1,605 |
| AISC by-product $/Oz | 784 | 868 | 940 | 878 | 866 | 996 |
Source: Company release and Morningstar
1 - Pretium Resources posted $126.56 million in Revenues in 1Q'20
Pretium Resources released its first-quarter results on April 30, 2020. It was the eleventh full quarter of commercial production.
Revenues were $125.56 million, up from $103.12 million in 1Q'19, with a net profit of $6.24 million, or $0.03 per diluted share. Jacques Perron, new President, and CEO of Pretium Resource said in the conference call:
We are in a healthy financial position that improves with each ounce of gold produced from Brucejack. We are already much better off than many other miners at this uncertain time. However, one of my early priorities will be a review of Pretium short-term liquidity. Given the unusual risks related to the COVID-19 pandemic it is prudent to consider our position.
2 - Analysis of the all-in sustaining costs (AISC) on a by-product basis
AISC is calculated based on the gold sold. For the first quarter, Pretium Resources sold less of what it produced. Generally, gold sold and gold generated are quite similar, and it makes no difference, in general.
| Gold ounces sold/produced | oz | 82,888/80,460 |
| Silver ounces sold/produced | oz | 123,926/114,640 |
The company indicated an AISC of $996 per ounce on a by-product basis ($868 per ounce in 1Q'19), which means that the silver production is part of the costs.
During 2019 average AISC was at $888 per ounce, which is well above the LOM average AISC of $539 per ounce, indicated on April 4, 2019, where the company confirmed that LOM is now 14 years.
The AISC for the first quarter of 2020 is now $988. As I have said a few years back, indicating an AISC low was not reasonable, and time is proving me right.
3 - Free cash flow estimated at $41.7 million in 4Q'19
Note: Generic free cash flow is the cash from operating activities minus CapEx.
The free cash flow situation is improving with the gold production. Yearly free cash flow ("ttm") is now $188.1 million, with an FCF of $41.7 million in 1Q'20. The company generates excellent free cash flow even if it is not what was expected initially. The Brucejack mine is good, but it is also sure that it is not the "gold mine" that M. Quartermain wanted us to believe.
4 - Net debt is $408.9 million as of March 31, 2020 (including current LT Debt).
Net debt is now $408.9 million, down sequentially. You can follow the debt situation since 2016 above. Net debt to EBITDA ratio is 1.82x
The details of the debt reduction are indicated below:
Source: PVG Presentation
Tom Yip, the CFO, said in the conference call:
Subsequent to the quarter end at the precautionary measure to increase available liquidity the company drew down $16 million of the revolving portions of the loan facility and added to our March 31 cash balance of $40 million.
5 - Gold and silver production analysis
In the first quarter of 2020, the Brucejack Mine produced 82,888 ounces of gold, and the company sold 80,460 ounces at an all-in sustaining cost of $996 per ounce of gold sold.
Brucejack Mine Preliminary Production Outlook (confirmed in the first quarter): Ongoing gold production in the Valley of the Kings expected to be in line with the guidance range for 2020.
Source: PVG Presentation
Foreseeable 2020 production and financial guidance remains achievable assume there is no significant impact on operations at the Brucejack Mine due to the COVID-19 pandemic. As described earlier while we have taken precautions to mitigate the risk of COVID-19 we are reviewing the future impact to development, Stope availability and production should the restrictions related to the COVID-19 persist. (conference call)
Gold and Silver Production at the mine.
Production detail history: Grade per Tonne and Daily Production Tonne per day
Grade per tonne this quarter is 7.8 G/T, while daily production decreased to 3,793 TPD.
The company is processing much more ore at lower grades. The results are more costs and more risks reducing profit significantly. If we look at the chart above, the grade averaged ~12.0 G/T in 2018. The mill feed grade averaged 8.7 G/T in 2019, and now we have 7.8 G/T for the 1Q'20, which is a record low grade since the mine has been completed.
Conclusion and Technical Analysis
Pretium Resource released its first quarter of 2020, and it was disappointing. The gold production was barely above the same quarter last year, and the grade was weak. Even AISC was high at $988 per ounce.
Years ago, the Brucejack mine was considered a prolific mine with high grades and potential. At least, it was what was presented to investors. Along the way, the story started to shift, and reality prevailed. We have now a good mine with a difficult orebody, and nothing really to brag about considering the cost of bringing this project to completion.
Technical Analysis (short term)
PVG dropped significantly in Mid-March and reached a low of $4.00, which is now long term support (double bottom potential).
However, PVG started to recover quickly and has reached first resistance at about $8.60. The pattern is called an ascending wedge, and it seems that we are close to a breakout. I believe the probability of a support breakout is high, and in this case, PVG will go down to $6.30 (Buy signal) after crossing support at $7.85.
If the gold price continues to climb, then PVG will eventually cross the resistance and reach about $9.20. In this case, I recommend selling about half your position.
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This article was written by
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.
I trade short term PVG
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Comments (6)
Not a bad stock anyway.