Pretium resources on the way to meet h1 production and cost guidance – pretium resources inc (nyse pvg) seeking alpha electricity a level physics


Pretium Resources (NYSE: PVG) released its Q1 2018 financial results. The results are not too impressive, however, no miracles were expected, as the January gold production was negatively affected by the well-known technical issues and Pretium was able to produce only 15,143 toz gold. However, the measures adopted to solve the problems started to bear fruits, and in February and March, results improved notably and Pretium produced 27,636 toz gold and 32,910 toz gold respectively.

Total Q1 gold production climbed to 75,689 toz, which is more than in Q4 2017 but less than Q3 2017. Pretium sold 68,651 toz gold and 84,234 toz silver, which resulted in revenues of $89.4 million. The cash cost was $841/toz and AISC was $1,009/toz. The company recorded earnings from mine operations of $16.8 million, a net loss of $8.1 million, and adjusted earnings of $5.8 million. The amount of cash generated by operations was $24.7 million. The cash position increased to $70.5 million compared to $56.285 million as of the end of Q4 2017.

The implementation of operational grade control has had a positive impact on our ability to consistently deliver high-grade ore to the mill as we ramp-up production The Brucejack Mine is generating free cash flow, and we are on track to achieving H1 2018 guidance of $900 to $700 per ounce of gold sold. We remain confident that we will deliver on our H1 2018 AISC guidance, as well as our production guidance of 150,000 to 200,000 ounces of gold and expect to achieve steady-state production by mid-to-late 2018

The confidence is really reassuring as we are in the middle of Q2, which means that there is not too much time left before the end of H1. If the management states that the guidance will be met, it indicates that things are finally going well. In my previous article, I calculated that if Pretium manages to maintain the March production levels, it should produce around 98,730 toz gold in Q2.

The H1 production guidance was 150,000-200,000 toz gold at an AISC of $700-900/toz. In order to meet the lower end of the production guidance, Pretium must produce 74,311 toz gold in Q2. However, in this case, the AISC must be $789/toz in order to meet the higher end of the cost guidance. As in Q1, the AISC equaled $1,009/toz, it is hard to expect the Q2 AISC to decline to $789/toz, even though the production volume remains almost unchanged. The Q2 production must be notably higher compared to Q1 in order to push the overall H1 AISC to $900/toz or even lower. If Pretium produces 98,730 toz gold in Q2, the total H1 production will equal 174,419 toz gold, which is right in the middle of the production guidance.

In this case, Q2 AISC of $817/toz would be needed in order to push the H1 AISC down to $900/toz. It is much more reasonable than 74,311 toz at an AISC of $789/toz. Moreover, as the upper limit of the production guidance is 200,000 toz gold (or 100,000 toz gold per quarter) and the lower limit of the cost guidance is $700/toz gold, it is possible to assume that at a production volume of 100,000 toz gold, AISC of $700/toz is expected. This would explain why the management is so confident even in regard to meeting the cost guidance. As a result, I believe that the Brucejack mine is doing as good as in March, if not even better.

Right now, Pretium’s share price stands at $6.93. Although it jumped nicely in early April, after the Q1 production results were released, it declined back to the $6-7 range quite quickly. As the Q1 financial results haven’t provided any meaningful surprises, it is possible to expect that their impact on the share price will be negligible. The next important catalyst is expected in early July when the Q2 production results should be released. If the Q2 production is around 100,000 toz gold or more, we can expect the share price to jump nicely up. And if the Q2 financial results (probably sometime in August) confirm the AISC in the $700/toz area, the share price may approach the $10 level. Conclusion

The Q1 2018 financial results haven’t provided any major surprises. Although Pretium recorded a small net loss, it was cash flow positive and its cash position improved by almost $15 million. The most positive part of the news release is the reiteration of the H1 cost and production guidance which indicates that the Brucejack mine does at least as good as in March. Right now, there is a good time to accumulate more shares or to initiate a new position, before the share price starts to move up in anticipation of good Q2 production results. If the Q2 production is around 100,000 toz gold or more, and the AISC declines to the $700/toz level, we can expect Pretium’s share price to attack the $10 level by the end of August.