Pretium's High-Grade Brucejack Gold Mine: So Far So Good
Pretium's High-Grade Brucejack Gold Mine: So Far So Good
Aug.18.17 | About: Pretium Resources (PVG) Peter Arendas Peter Arendas Long only, commodities, research analyst
(1,373 followers) Summary
Pretium's Brucejack mine entered commercial production and produced 25,392 toz gold.
The plant was operating almost at 100% of its nameplate capacity in July.
The majority of gold was produced from low-grade stockpiles, however, the low-grade material is being replaced by the high-grade stopes material.
The Q3 and Q4 production numbers will be crucial for future share price development.
If everything goes well, Pretium's share price has the potential to climb to the $15 level by the end of this year.
The Pretium Resources' (PVG) Brucejack mine has been completed successfully. The first gold pour was announced on June 20. Moreover, it took only a very short time to take it into the commercial production that was declared on July 1, as during the month of June, the process plant processed 2,360 tonnes of ore per day on average, which represents 87.4% of the nameplate capacity (985,500 tonnes per year or 2,700 tonnes per day). Despite the positive developments, the share price of Pretium Resources is up only by 5% year-to-date. However, if everything goes as planned, it should change over the coming months.
Last week, Pretium announced that it produced 8,510 toz gold during June and another 16,882 toz gold in July. Although the numbers are well below the projected production volumes of 42,000 toz gold per month over the first 8 years or 33,667 toz gold per month over the life of mine, the majority of the processed ore came from low-grade stockpiles created during the development phase. It was probably the weak gold price in conjunction with the relatively low production numbers and lack of information regarding recoveries, that caused Pretium's share price to drop over the first half of August. However, the numbers should be improving step by step and so should the share price.
According to the updated feasibility study, over the first year of production, the mine should process 839,490 tonnes ore. In June, the plant processed 70,805 tonnes of ore and in July it was 83,667 tonnes of ore. The average daily throughput equalled 2698.94 tonnes, which is only negligibly below the nameplate capacity of 2,700 tonnes per day. It is a great news, however, most of the processed material came from stockpiles. Even though the company has stated that the underground operations reached the design-level production, we will have to wait for the Q3 results, to see whether the company is able to maintain the throughput rates at the almost 100% level.
Source: Pretium Resources
Although reaching almost 100% of the nameplate capacity is great, the most important goal is only to be reached. The low-grade ore from the stockpiles is being replaced by the high-grade ore from the stopes. As a result, the feed grades, as well as the volumes of produced gold and silver, should keep on growing over the coming months. According to the updated feasibility study, the feed grade should reach the 15.4 g/t gold and 11.7 g/t silver level during the first year of production. The gold and silver recoveries should climb to 96.8% and 84.9% respectively. If Pretium is able to approach these numbers during Q3 and Q4, it will be a major boost to Pretium's share price.
The Brucejack mine is the most valuable asset of Pretium Resources and it is rightly in the centre of investors' attention. However, it is important not to forget about Pretium's Snowfield project that contains indicated and inferred resources of 35 million toz gold, 127 million toz silver, 4.08 billion lb copper, 386 million lb molybdenum and 34 million toz of rhenium. Although the gold equivalent grade is only around 0.7 g/t, Snowfield is highly leveraged to growing gold price. The 2010 PEA estimated that the Snowfield mine should produce 607,000 toz gold, 57.8 million lb copper and 4.5 million lb molybdenum per year over the 23-year mine life. The CAPEX was estimated at $3.4 billion. It was the huge CAPEX in conjunction with falling metals prices that forced Pretium to lay Snowfield aside. But after the Brucejack mine is in full production, Pretium should be able to start moving Snowfield ahead. Moreover, there is also some potential to develop it in collaboration with Seabridge Gold (SA) that owns the nearby KSM project.
And some further upside potential may be presented also by the exploration program that started last month. Pretium is focusing on an area approximately 20 km to the east of Brucejack. The mapping and sampling should help to generate new drill targets.
From the technical point of view, Pretium seems to be primed for some gains in the short term. It seems like the share price has created a double bottom. It has also crossed the 10-day moving average to the upside. The RSI touched the oversold territory and started moving back up. Moreover, the chart shows also an RSI divergence, when the share price created a new, lower low, while the RSI curve created a new, higher low. The CCI has left the oversold territory and is heading up, just like RSI.
Conclusion
Two months ago, I wrote an article where I predicted Pretium's share price to cross the $15 level by the end of 2017 and to attack the $20 level by the end of 2018. The price targets were set using a gold price of $1,270/toz, an annual production of 504,000 toz gold (the average over the first 8 years), at an AISC of $445/toz and a conservative P/E ratio of 10. As the gold price has increased by $15 and there were no major issues with the start-up process reported (quite the contrary, as it seems that the main issue occurred when ore grading 23,547 g/t gold got trapped behind a SAG mill liner), the price targets still seem to be reasonable. A lot will depend on the gold price development as well as on the Q3 and Q4 production numbers. If everything goes well and Pretium is able to reach the targeted recoveries and gold and silver production numbers on time, its shares should end this year 75% higher compared to today's price of $8.6.
Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in PVG over 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.
