Why This Mining Company May Be Your Golden Parachute

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Having recently arrived back from Vancouver and the annual Resource Investment Conference held at the city’s convention center, I was looking for fresh ideas for the gold mining space for my readers. The best of the bunch from the conference for mid-tier producers is Pretium Resources (PVG). I spoke with company representatives about their project.

Pretium Resources

The Brucejack mine is an underground, higher grade mine located in British Columbia.

Brucejack Mine Pretium Resources
Brucejack Mine Pretium Resources

Source: Pretium

The mine is on pace to produce about 400,000 ounces per year, or around 95 – 100k ounces per quarter. The company has a very reasonable $710 – $750 AISC per ounce of gold, which leaves a cash margin per ounce somewhere in the $550 to $600 range with present gold prices.

Pretium Mine Results
Pretium Mine Results

The Brucejack mine is averaging just under 13 grams per tonne of rock mined, which is a very healthy number and why the all in sustaining costs are below what the world wide gold mining average is. As a result, Pretium is averaging a healthy $47 million in quarterly cash flow.

Since Q2 of 2017 when the company had negative working capital, the company has been cleaning up the balance sheet and is reporting $180 million of working capital as of Q4 2018.

While the Brucejack mine is operating healthily at the moment, the company expects to bring in some additional equipment and to make milling modifications during some scheduled shut downs. The company will revise produce guidance, as a result, sometime during Q2 via an updated technical report. The company is expecting that a $25 million investment in the mill will increase throughput of the mine by up to 40%.

Mill Throughput Increase 40%
Mill Throughput Increase 40%

There is quite a bit of potential for reserve expansion through the existing land package, please see the latest investor presentation on the site which I have linked for you, for more information.

Risks with Pretium

The Brucejack mine, while flush with resources, has exhibited varying grades which makes production somewhat unpredictable. This is part of why I believe the stock price has come down as investors have some questions over the long term how well the company will be able to meet it’s production guidance.

Grade Inconsistency Brucejack mine
Grade Inconsistency Brucejack mine

The company has made strides in tightening the financials, including closing a bank debt facility and also have repurchased a precious stream agreement on the metals production. However, these positive developments have failed to resonate so far with stock investors. As a result, the price has come down from the September peak of $9.45 per share.

The other risk regards the insider ownership for the stock and the overall interests that own the majority of shares. Dudley Baker recently reported that insiders have been selling shares during 2018.

Typically, have multiple insiders sell so many shares at once would be a sign of lower management confidence in a project. On the other hand, as I have reported in a previous article, the insiders across the broad stock market have been selling shares since the last recession. Whether or not this is selling into a mature business cycle or a sign that problems are brewing at Pretium is not clear, but bears watching over the next couple of quarters.

The majority of shares are owned by a host of different institutions who are betting on the mine and the company’s management. Those include the following.

Pretium Capital Structure
Pretium Capital Structure

 

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