Pretivm Resources Inc. (PVG)

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Exclusive interview: Pretium’s Ovsenek responds to Brucejack ramp-up criticisms

Posted By: Matthew Keevil January 29, 2018

Pretium Resources’ Brucejack gold mine in northwestern British Columbia. Credit: Pretium Resources.

On Jan. 23, Pretium Resources (TSX: PVG; NYSE: PVG) provided an update on the ramp-up at its flagship Brucejack underground gold mine in northwestern B.C.’s Golden Triangle district.

The company was criticized by BMO Capital Markets for providing “more questions than answers” following a release that included lower-than-expected mine grades and higher all-in sustaining costs (AISC).

Pretium’s stock had dropped over 30% to a 52-week low of $9.18 per share on the Toronto Stock Exchange (TSX), on 13.3 million shares traded at the time of writing on Jan. 29.

The company attributes the results to a delay in commissioning its “grade control system” at the mine, as well as flaws in its development plan related to areas lacking sufficient in-fill drilling.

Pretium president and CEO Joseph Ovsenek agreed to an exclusive interview with The Northern Miner to set the record straight on the Brucejack ramp-up. He explains that the company remains committed to producing roughly 500,000 oz. gold annually for the first eight years of the mine’s 18-year mine life, at an AISC of US$446 per oz. gold.

Flotation cells in the mill building at Pretium Resources’ Brucejack gold mine in British Columbia. Credit: Pretium Resources.

The Northern Miner: What is your take on the negative market reaction to Pretium’s Jan. 23 press release on Brucejack’s ramp-up and 2018 guidance?

Joseph Ovsenek: I think the market is not understanding that we’ve got a highly-variable, high-grade gold mine that’s just ramping up. The fourth quarter was our second quarter of actual production. We certainly started out very well, but it’s still a ramp up. You don’t just start-up a mine and turn on the factory. It’s much more complicated.

Pretium Resources' president Joseph Ovsenek underground at the Brucejack gold project in British Columbia. Source: Pretium Resources

The market didn’t give us any leeway, and they’re entitled to do that, but this is all part of the process. We’ve got work to do.

TNM: The grade reconciliation of 75% to 80% was a talking point following the release. Was that a range Pretium expected during pre-production?

JO: We’ve been pushing [grade reconciliation] from our first week of mining. We told everyone that it was very early days and we’d do the best we could at year end. But we’re looking at reconciliation over just five months, and we’ve been mining a very small portion of the deposit where we didn’t have the drill density we do in other areas. We also don’t have our grade control system working.

So, we think the results are actually quite good for our first six months of operation, all things considered.

But the market is clearly saying they want us to be better than that. It’s early days on grade reconciliation along with everything else. We believe as we get into other better-defined areas, and open up the deposit, we’ll be able to approach parity with our grade model. But right now we’re five months into mining on an operation that has a twenty-year life.

It’s the harsh reality of the market and obviously we have to do better. We’re working hard on that. In the end we’re in a ramp-up and we believe things are going to meet our expectations. It’s just a question of time.

TNM: Could you provide more detail on mining at the 1,200 level sill and the lower grades?

JO: The feasibility study (FS) called for developing a sill on the 1,200 level, and we went ahead and did that to establish the long-term infrastructure for the mine. We’re taking a longer-term look at an operation with an extended life here and not just at numbers for the quarter.

But our drill density down there was not where it should have been. We should have had higher density before we were mining at the 1,200, but that’s hindsight.

We actually had the density we needed at the top-end of those stopes, which are around 30 metres high, but not at the bottom. We ran into big variability and since we didn’t have the grade control system working we couldn’t refine our stopes as well as we should have.

We have a bulk underground model for mining the deposit. It is designed to block off our gold in effectively ten-by-ten metre blocks. We then put stopes around it that run 15 metres wide, by 30 metres high, by 30 metres long.

We need our grade control system to allow us to actually define the dimensions of our stopes. Unfortunately, we’d thought it would be operational in the fourth quarter, and we needed to execute better on that. The plan is to get it fully operational by mid-February, and that will help us with the dilution. When you combine it with opening up other areas of the mine plan, well, it should improve our grade reconciliation rate toward parity.

TNM: What does the grade control system look like and what were the issues that caused the delays?

JO: It’s effectively a big tank with an agitator. So you’re looking at something resembling an industrial size washing machine that blends material. That part of the system works fine. You put drill cuttings from our long-hole drill in there and mix it up with a bunch of water for a nice, homogeneous sample.

The problem we had was the feed into the system, as well as the outflow from the system where we actually gather our samples. Those parts were not robust enough to work on a day-to-day basis and give us reliable, steady samples. We tried to put it together through November, but realized it wasn’t going to work. So we re-engineered the in-flow and out-flow areas, and it’s now being re-commissioned. We’re putting it through more rigorous testing before declaring it operational, but we’re expecting it’ll be ready in a couple weeks.

The first gold doré bar produced at Pretium Resources’ Brucejack mine. Credit: Pretium Resources.


TNM: You mentioned “hindsight” pursuant to the feasibility plan and the 1,200 level. Are there any other elements that might make the company re-consider the current mine plan or scheduling?

No. The problem was that our plan has always been to mine areas where we have the necessary drill density. We’re running a trial program on reverse-circulation (RC) drilling this week to see if we can speed things up in that regard. We’d originally planned on using core drilling, so it could also make things cheaper.

We’re following the model being used at AngloGold Ashanti‘s (NYSE: AU) Sunrise Dam mine in Australia. We understand they’ve had good success with it there.

But we need to be mining where we have that drill density, and we shouldn’t have been mining down on that 1,200 level. Unfortunately, we opened it up following the FS and it was going ahead. We realized we weren’t getting the grade we wanted in places, but once it’s opened up and you’re mining it you have to finish up and back-fill so you can start on the area above. We’re working through that now.

TNM: Brucejack’s AISC guidance for the first half of 2018 is higher than expected at between US$700 to US$900 per oz. due to “accelerated underground development” and “winter-related costs.” Could you provide some detail on the cost estimates?

JO: The “accelerated development” part actually ties a little bit into the fourth quarter.

We went into the fourth quarter and felt the Street had gotten out a little bit ahead of us. We saw those production estimates coming from the analysts, but internally we’d expected marginal improvement on our third-quarter results. We were moving along on that course and doing fine, but in December both our long-hole drills went down and we had trouble blasting a stope right when we were getting into higher grade material. We couldn’t get the high-grade ore into the mill and didn’t have any alternatives.

So we’ve done a few things to make sure that doesn’t happen in the future. We brought in another drill to build stope inventory and give us a back-up. That’s extra development costs.

If you look at the FS, we’re supposed to be running at around 2,700-tonnes-per-day, which means the expectation tends to be: development at a rate of around 420 metres per month.

Well, we are going to be developing through this year at a rate of 700 metres per month because we want to build-up that stope inventory. The FS says we should hit full production rate running between five and six stopes, but we want to have another five or six stopes in inventory. That gives us a range of grades so if we get hung-up somewhere we have a back-up.

In terms of the weather, we found that when we were in construction that we were always behind the curve in terms of how much it cost us to keep everything going with the snowfall. I expect we’re being a little conservative in that regard, but it’s our first winter of purely mining at Brucejack. We get five to six metres of snow, and we have to be prudent with that.

TNM: Could you give us context on the new guidance range over the firsthalf of 2018, which calls for between 150,000 oz. and 200,000 oz. gold production?

JO: The range for the ramp-up is 150,000 oz. if we keep doing what we’re doing now. The upper end assumes we get the grade control working in February and start getting that data into the short-term mine plan. By mid-March we’d start to define our stopes better, narrowing it down, and focus on getting the grade up. So heading into the second quarter we’re running a fully-operational grade control system. That puts us closer to the top end.

We’ve only put out six months guidance because we want to signal to people that: ‘Look, we’re still in ramp-up mode.’ People don’t seem to care and just want us to deliver, which we understand, but we expect to get things sorted out over the next six months.

We have the tonnes right now and the mill is running great with no issues at current capacity. It’s just a question of getting that data we need to smooth out the grade profile.

TNM: There had been some controversy in years past with the Brucejack resource modeling triggered by the departure of Strathcona Mineral Services as a consultant on the project. Has anything in the current ramp-up caused Pretium to re-consider how you’re going to model, or approach, the deposit?

JO: No. It’s a highly-variable deposit we’ve been estimating from surface. We’re now underground and opening it up. Like I said, it’s now all about the data. We need more of it and we need the grade control system going so we can really define our stopes well. We need to continue with the in-fill drilling because it’s not a deposit where you can mine on 10-or 20-metre drill spacing. You have to be down in the five-to-ten metre drill centres. So it’s more about refinement of the resource model than starting from scratch. We have that ability now that we’re underground. We need to keep refining our knowledge, and our model, and we’ll get there.

TNM: Finally, how is Pretium’s capital position looking in terms of the ramp-up and guidance?

JO: We’re making money; we’re generating cash. We’re on the positive side of that situation, so we don’t have any overhang to worry about in terms of where the next buck might come from. It takes the pressure off and we can now focus on execution and improving grades.

We’re quite pleased with a lot of elements at the mine. We’re clearly not pleased with the share price, but this is a long-term mine and we’re going to be successful.

http://www.northernminer.com/news/exclusive-interview-pretiums-ovsenek-brucejack-ramp-criticisms/1003793482/