I don’t normally comment on developments in stocks I own in Speculator’s Digest posts—that sort of analysis is what subscribers to The Independent Speculator pay for. However, I outed myself as a shareholder of Pretium when it was the victim of a “short and distort” attack last year. So I might as well follow up with a look at the volatility that just hit the stock this week.
Full Disclosure: I still own shares in Pretium Resources (PVG, PVG.TO).
I noticed Wednesday morning that Pretium’s share price was dropping like a rock. This was odd, since gold was up. That divergence increased over the day. Something was up, but there was no news from the company, no useful chatter online, and nothing from my industry sources about what might be going on.
It could have been anything: an environmental problem, an issue with the taxman, a turn for the worse in relations with the First Nations, another smear campaign, or almost anything else we could imagine.
I even commented on this on the Pretium’s portfolio page for readers of The Independent Speculator, letting them know I’d follow up as soon as I had something more concrete to report.
We didn’t have long to wait. After market close, Pretium put out a report on its production for Q4 2018. The company produced more gold than the prior quarter, but at a lower average grade (11.5 g/t, down from 12.4 g/t in Q3). Pretium missed production guidance for H2 2018 by 5%.
Given that Pretium had maintained guidance as late as November and that it had missed guidance in Q3 2018, I was expecting Q4 to come in above guidance, not below. So the news was genuinely disappointing—but by no means a disaster. The 11.5 g/t gold average is still very high-grade production. With gold itself up in Q4, the quarter is likely to deliver well to the bottom line, despite the lesser margins.
Better still, daily throughput increased from 2,610 tonnes per day (tpd) to 2,903 tpd without the grade dropping much lower. Given the variability of the mine’s production and that even at 12.4 g/t, it was still producing well below the average grade of its Proven & Probable mine reserves, it was fair to ask if Brucejack could maintain anywhere near current grades once production ramps up to the planned 3,800 tpd. I think we now have the answer: grade may drop some, but it should remain high, even at much higher output levels.
That’s key. Coupled with the higher gold price environment I expect this year, this makes me confident that Pretium will continue increasing its delivery to where it counts most: the bottom line.
Now, I understand that many investors worry that Pretium’s critics may be right after all. If so, the company wouldn’t be able to maintain its high-grade production going forward. In this light, the decline from 12.4 g/t in the previous quarter to 11.5 g/t in Q4 seems alarming. I’d be alarmed as well if production had remained level—or decreased—and grades had dropped at the same time.
But that’s not what happened.
Where does this leave this story?
Obviously, maintaining grade as Pretium increases production is going to be tough. But we’re not talking about catastrophic decreases here. Margins will likely narrow, but the amount of cash delivered to the bottom line should increase. That should happen even without the higher gold prices I expect this year.
I’m not trying to sugarcoat anything here: I am disappointed.
I’m more unhappy that someone leaked the news before the company’s press release hit the wires. That makes me glad to see that Pretium just announced that it is investigating Wednesday’s leak.
I’d be happier still if the company pledged to communicate earlier and better to all shareholders when it becomes apparent that it’s going to miss on guidance. Lots of companies update their guidance in between quarters; there’s no reason why Pretium couldn’t do so as well. I think such updated guidance would have greatly mitigated the loss of shareholder value we’ve seen since Wednesday—and I told management this. I’m hopeful they’ve learned their lesson and will communicate better in the future.
But none of this changes my basis for speculation. An actual decrease in production or a drop in grade to much lower levels would have me considering selling. That’s not the case. Pretium still looks like a growing, profitable gold miner with plenty of upside with or without higher gold prices. I think the folks who bailed this week will regret their panic before too long.
I’m holding, and would consider averaging down if the share price dropped below my entry point.
That’s my take.
Friday, January 11, 4:11pm, EST, 2019