Investment Thesis
Vancouver-based Pretium Resources (PVG) released its first-quarter 2021 results on May 4, 2021.
Revenues for the 1Q'21 were $142.43 million, up 12.5% compared to the same quarter a year ago. Net income was $26.6 million or $0.14 per share compared to $8.77 million or $0.05 per share last year. The results missed analysts' expectations.
Pretium Resources has overperformed the VanEck Vectors Gold Miners ETF (NYSEARCA: GDX). The Brucejack mine is a good gold producer, but the ore body has been extremely challenging.
The investment thesis remains simple. I believe the company can be considered as a reliable long-term investment. The debt is gone, and the mine is producing steady free cash flow for the foreseeable future unless the gold price turns ultra-bearish.
However, I recommend trading short-term about 50% of your long-term position by using technical analysis.
Pretium Resources - 1Q'20 Results and Financial Snapshot
| Pretium Resources | 1Q'20 | 2Q'20 | 3Q'20 | 4Q'20 | 1Q'21 |
| Total Revenues in $ Million | 126.56 | 166.57 | 154.88 | 169.58 | 142.43 |
| Net Income in $ Million | 6.24 | 32.26 | 31.18 | -108.11 | 26.60 |
| EBITDA in $ Million | 57.35 | 87.64 | 84.05 | -44.58 | 68.10 |
| EPS diluted in $/share | 0.03 | 0.18 | 0.17 | -0.58 | 0.14 |
| Operating cash flow in $ Million | 52.54 | 92.13 | 83.37 | 89.27 | 61.26 |
| Capital Expenditure in $ Million | 10.83 | 9.65 | 16.81 | 11.76 | 13.46 |
| Free Cash Flow In $ Million | 41.7 | 82.5 | 66.6 | 77.51 | 50.97 |
| Cash and short-term investments in $ Million | 40.6 | 124.7 | 175.0 | 174.75 | 208.93 |
| Total Long-term Debt + Conv. note in $ Million | 449.5 | 382.8 | 434.7 | 262.63 | 247.71 |
| Shares outstanding (fully diluted) in Million | 195.3 | 186.6 | 187.5 | 186.4 | 187.9 |
| Gold Production K Oz | 1Q'20 | 2Q'20 | 3Q'20 | 4Q'20 | 1Q'21 |
| Gold ounce Production Oz | 82,888 | 90,419 | 86,136 | 88,299 | 85,575 |
| Silver Production in oz | 123,926 | 109,332 | 130,975 | 107,930 | 117,905 |
| Gold price realized $/ Oz | 1,605 | 1,738 | 1,935 | 1,914 | 1,804 |
| AISC by-product $/Oz | 996 | 911 | 1,016 | 1,009 | 1,005 |
Source: Company financial statement, Fun Trading files
1 - Pretium Resources posted $142.428 million in Revenues in 1Q'21
Pretium Resources released its first-quarter 2021 results on May 5, 2021. It was the fifteenth full quarter of commercial production.
Revenue was $142.43 million for the first quarter of 2021, up 12.5% from the first quarter of 2020. The increase in revenue from last year was principally the result of higher average realized gold prices on higher ounces sold.
The total cash costs for 1Q'21 were $830 per ounce of gold sold compared to $787 per ounce of gold sold in the comparable period in 2020.
The company said in the press release:
Total cash costs increased due to higher production costs primarily due to COVID-19 safety and testing protocols and the strengthening Canadian dollar.
2 - All-in sustaining costs (AISC) on a by-product basis - Discussion
As a reminder, AISC is calculated based on the gold sold. For the first quarter, Pretium Resources sold less gold than it has produced.
| Gold ounces produced/sold | oz | 85,795/81,707 |
| Silver ounces produced/sold | oz | 117,905/not indicated |
The company indicated an AISC of $1,005 per ounce on a by-product basis ($996 per ounce in 1Q'20), which means that the silver production is part of the costs. The AISC is much higher than what was expected a few years back.
3 - Free cash flow estimated at $47.8 million in 1Q'21
Note: The generic free cash flow is cash from operations minus CAPEX. However, the company is indicating $51.0 million using another calculation.
The free cash flow generation has improved significantly with the gold price, even if it weakened a little sequentially.
Trailing yearly free cash flow is now estimated at $274.36 million ("ttm"), with an FCF of $47.8 million in 1Q'21 estimated by Fun Trading
4 - Net debt is significantly lower at $38.78 million as of March 31, 2021 (including current LT Debt)
Net debt is now $38.78 million, down again sequentially. You can follow the debt situation since 2016 above. The company was nearly net-debt-free in 1Q'21. However, Pretium Resources indicated that:
At March 31, 2021, the undrawn portion of the Loan Facility was $160.3 million. Subsequent to the quarter end, we voluntarily repaid the entire remaining amount of $38.0 million on the revolving portion of our Loan Facility.
5 - Gold and silver production analysis
1 - 2021 guidance unchanged.
Source: PVG Presentation
The company said in the press release:
We remain on track to achieve our 2021 operational and financial guidance, including production guidance between 325,000 and 365,000 ounces at an AISC between $1,060 and $1,190 per ounce of gold sold. Due to the impacts of the COVID-19 outbreak on operational activities, combined with performance issues with several stopes during and following the outbreak, we currently expect gold production and grade in the second quarter of the year to be below our guidance range on an annualized basis.
Note: The gold production outlook in 2021 is 3.7% lower than in 2020.
2 - Gold and Silver Production History
In the first quarter of 2021, the Brucejack Mine produced 85,795 ounces of gold, and the company sold 81,707 ounces at an all-in sustaining cost of $1,005 per ounce of gold sold. Pretivm also produced 117,905 Ag Oz in Q1'21.
3 - Production detail history: Grade per Tonne and Daily Production Tonne per day
Grade per tonne in the first quarter went down to 8.2 G/T, while daily production decreased to 3,790 TPD from 3,793 TPD a year ago. The grade is decreasing and is now well below what the company indicated in 2016.
Conclusion and Technical Analysis
Pretium Resources released the first quarter of 2021, and it was a mixed bag, as usual.
The gold Production was a little on the weak side with a low grade per tonne and a warning for a second-quarter production below guidance. Some concerning issues with several stopes tell me that the mine continues to be a tough cookie.
On the positive side, the company paid off the remaining balance of the revolver and showed total cash of $208.93 million.
Technical Analysis (short term)
PVG forms an ascending channel pattern with resistance at $11.8 and support at $10.6.
The trading strategy: sell about 30% at resistance between $11.5 and $11.8 and accumulate between $10.8 to $10.6.
PVG is highly correlated to the gold price. Thus, if the gold price turns bullish and crosses the $1,850 per ounce, PVG could eventually trade above $12-$13. Conversely, if the gold price turns bearish and drops below $1,650 per ounce, I see PVG dropping below $9.
Warning: Those numbers cannot be precise, and the TA chart must be updated often to be helpful in your search for the best path strategy. I am offering here a quick interpretation only. I regularly update the TA chart for my subscribers through my over 80-stock tracker.
Watch gold price like a hawk.
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