Shares of Pretium Resources (TSX: PVG; NYSE: PVG) plunged 30.5% on Oct. 9 after Strathcona Mineral Services withdrew from the high-grade Brucejack gold-silver project in northwestern B.C.
The Toronto-based consulting firm was hired to excavate and report assays from a 10,000-tonne, bulk-sample program at Brucejack’s Valley of the Kings deposit. Strathcona had planned to process the 10,000 tonnes through a sample tower to help confirm the Valley of the Kings’ resource estimate prepared by Snowden Mining Industry Consultants in November 2012.
The sample tower was designed to extract two 30 kg samples from every 100 tonnes processed. Next, Strathcona would have assayed the smaller samples to compile a report validating the resource model, which was also used in the company’s 2013 feasibility study at Brucejack.
The bulk-sampling program includes a 16,800-metre underground drill program, as well as milling the 10,000-tonne sample to produce gold and confirm the resource model.
But on Oct. 9, Pretium announced that Strathcona had quit without providing details, leaving investors scrambling to make sense of the news. Pretium’s shares collapsed to a 52-week low of $4.56, before closing the day at $4.87, or down $2.14 per share in Toronto.
Reached by phone, Strathcona founder Graham Farquharson told The Northern Miner that Strathcona’s consultants had commented to its client on the bulk-sample program and given their reasons for leaving, and that it was up to Pretium to release those comments, if it chooses to do so.
But Pretium says Strathcona could have had technical differences with the project’s other consultants. Pretium is sourcing consultants from Snowden to review and sign-off on the bulk-sample program’s milling and processing.
“In essence, the issue is between these two independent ‘qualified persons’ on how to reconcile the bulk sample against the resource estimate for the Valley of the Kings,” Michelle Romero, Pretium’s vice-president of corporate relations, wrote in an email.
“Snowden is of the opinion that we need to process the 10,000-tonne bulk sample through a mill and reconcile the gold produced against the resource estimate. Strathcona believes that the only method is to reconcile the results from sampling the bulk sample by the sample tower against the resource estimate,” Romero explained.
Despite this, Pretium says it will continue its program as planned. The company is milling the 10,000 tonnes at a rate of 1,000 tonnes per week to produce gold-and-silver gravity and flotation concentrates. Snowden expects to produce 4,000 oz. gold from the 10,000-tonne bulk sample, which makes the estimated gold grade per tonne 12.44. At this rate, the sample should be completely milled by December.
But it isn’t clear why the two consulting firms didn’t just create two separate reports on their findings. “We do not view a difference of opinion as a reason for consultants to withdraw,” BMO analyst John Hayes comments in a note. “If two sources of advice differ, it is an indication that further work or at least insight is needed,” he writes, adding that Strathcona’s analysis could have “identified whether the current resource model is potentially overgeneralizing the deposit, which could have implications for mining.”
But at this point, Pretium appears content to carry on with milling. “We are satisfied that simply getting the gold out of the rock is about as unbiased and robust a result as you can get, and that the market can make its own conclusions on this basis,” Romero said.
On Oct. 10 the company reported more results from its underground drilling as part of the bulk-sample program. The results include seven intersections grading more than 1,000 grams gold per tonne, with the best one returning 3,180 grams gold per tonne uncut over half a metre. Pretium rose 5% on the day to $5.10.
The company says the resource estimate for the Valley of the Kings should be updated by year-end, or early 2014. The revision would include underground and surface drilling, and milling results from this year.
The Valley of the Kings has reserves of 6.6 million oz. gold (15.1 million tonnes grading 13.6 grams gold), and the nearby West zone has 700,000 oz. gold (3.8 million tonnes at 5.8 grams).
According to the June 2013 feasibility, Brucejack could annually produce 321,500 oz. gold grading 12 grams gold over 22 years, with all-in sustaining cash costs of US$508 per oz. Annual output during the first decade would average 426,000 oz. gold grading 14.2 grams gold. Start-up costs for the high-grade underground mine are US$663.5 million, with commercial production slated for 2016. Pretium intends to update the feasibility results by mid-2014.
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