The only thing that would prevent this gold miner from profiting handsomely on its surprisingly large new discovery is another company buying them out, which is a distinct possibility, writes Lawrence Roulston of Resource Opportunities.
Pretium Resources (PVG) is rapidly advancing its high-grade Brucejack gold project in British Columbia. The Valley of the Kings zone hosts a measured and indicated resource of 8.5 million ounces of gold in ore grading 16.4 grams per ton. The inferred resource adds another 2.9 million ounces at similar grade.
Pretium was set up, and acquired the Brucejack and adjacent Snowfield projects late in 2010, thought to be large, low-grade deposits. President Robert Quartermain saw the high-grade potential at Brucejack and moved aggressively to outline a resource that could be mined in the near term as a high-grade underground operation.
Pretium conducted nearly 100,000 meters of drilling to outline the resource—undoubtedly one of the largest drilling programs worldwide last year. Quartermain headed the highly successful Silver Standard, creating $1 billion of shareholder value. Much of that highly successful team is now at Pretium.
A feasibility study is underway and due in the second quarter. A preliminary economic assessment last year was based on a mine that would produce 325,000 ounces of gold annually for the first 12 years, with capital expenditure of $436 million. Using a long term gold price of $1,100 per ounce, the study estimated a net present value (5%) of $2.2 billion.
Last year, the historic underground access ramp in the West Zone was widened to bring it to a size suitable for large-scale mining, and is now being extended toward the Valley of the Kings. The program is on track to produce a 10,000-ton bulk sample in the second quarter of this year, which will serve as a mining test. At the average resource grade, the sample would contain roughly 5,000 ounces of gold, an amount that would offset a significant portion of the costs.
The zone remains open to further expansion, and there are other high-grade gold zones on the property that could greatly expand the present resource figures. The present feasibility study anticipates a daily throughput rate of 2,700 tons per day (tpd), compared to the 1,500 tpd level in the preliminary economic assessment.
Increases to capex resulting from the larger scale of operation will be partially offset not by building a facility to treat the concentrate on-site, but rather selling the concentrate to a third party for final processing.
Gold recovered in the gravity circuit will be processed to dore (ingots of impure gold). Ongoing metallurgical testing has confirmed a recovery rate in excess of 95% for the combined gravity/concentrate circuit.
Management anticipates filing the permit applications this year, with construction scheduled to get underway next year. Production is anticipated to begin around the end of 2015.
Considering the experience of the management team and the fairly modest scale of the project, it is entirely reasonable to expect Pretium to successfully develop its Brucejack deposit. The biggest hurdle to that success would be a takeover offer from a larger company that wants to secure an extremely attractive, large, high-grade gold deposit in a favorable jurisdiction.
Tickers Mentioned: PVG