Friday, 14 September 2012

Pretium Resources: slide justified?

Pretium came with very decent drilling results lately (and was rewarded with a sell off). Last week, I saw some article pointing to PVG dropping below its 200 dma. This may also have triggered some additional selling spree on Friday, September 7.

Yesterday CIBC added some fuel to the fire: "CIBC cuts Pretium Resources to sector underperformer from sector performer, cuts target price to C$15.50 from C$18.50; on the company's updated resource estimates for its Brucejack Project in British Columbia."
What else do you need to tumble a gold explorer on a major upswing of the yellow metal?

Now the facts: according to the Sep 7 resource update (51-102F3 form on SEDAR) M&I resources are up 200 K Oz as compared to the NI-43-101 resource description, filed on April 3. The upward revision refers to the Valley of the Kings zone (no change to the data of the West zone).

Inferred resources are slashed: not just by the ounces transferred to the M&I category, but by over 45%. However the average grade of the inferred resource category of the VoK zone is upped to 35 g/tonne from 25 g/tonne. It is obvious that a much more cautious inference model has been used to describe the resource. In doing so, any future revision transferring ounces to measured & indicated resources most likely will result in an upward revision of total resources… even without new drillings adding anything meaningful to inferred resources: a “better safe than sorry” approach. (Cela fait plutôt preuve de ruse, chapeau!).

I added a little to my position @ C$12.78 (before the FED announcement).

Impartiality of a NI-43-101 resource estimate.

A first point to make things clear: a NI-43-101 must not be issued by the mining company, but rather by an independent Mining Consultancy company. The author of the Pretium NI-43-101 is Ivor W.O. Jones, Senior consultant of Snowden Mining Industry Consultants from Perth, Western Australia. Their independent assessment of drilling results and their resource estimate is what guarantees an impartial approach.

Could the NI-43-101 have overestimated inferred resources?

The resource estimate is subject to modification upon new drilling results. Any revision of the inference model may significantly alter the quantity of inferred resources. An exploration company with a team of seasoned geologists may well evolve to different estimates than those listed in their NI-43-101. Differences ought to be nil for measured and minimal for indicated resources. However, inferred resources are the most uncertain category, heavily relying on the choice of the inference model. A NI-43-101 is therefore always subject to peer review and further scientific discussion.
Of particular importance in this case is the high skewness of the grades observed in the drilling samples. In ordinary speech: you find little very high grade material among a lot of low grade stuff. Most inference models tend to smooth grades, which may distort the estimates. If you rather suppose the very skewed pattern to replicate, the very confined high grade and more diffuse low grade materials can be considered two different phases, subject to separate estimation calculations. This is the tendency of what I find in the last resource revision (51-102F3 form) by Pretium.
Remains the fact that the estimated grade for the inferred resources is largely higher than both the original estimate and than that of the M&I resources... which again leads me to assume that, after the necessary in-fill drilling, an upward revision while requalifying inferred to M&I resources is most probable.

Pretium presentation at the Denver Gold Forum

Link to the document presented (pdf) and a video link to the  oral presentation by Bob Quartermain.

Update: Conference call announced

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