VANCOUVER — Pretium Resources’ (TSX: PVG; NYSE: PVG) shares soared 80% on news that the Brucejack project bulk sample has already produced more than the 4,000 oz. gold Pretium promised it would — with 20% of the sample not yet processed.
With 8,090 tonnes of the 10,000-tonne sample processed, Pretium has produced 4,215 oz. gold. Results from the remaining 1,815 tonnes of sample are expected in early December.
The news lends much-needed validation to Brucejack and its 7.3 million oz. gold reserve estimate, which came under serious fire in October. That’s when Strathcona Mineral Services, a highly regarded geologic consultancy that had been brought on to complete bulk sampling and a secondary analysis, resigned from the project.
Strathcona explained its resignation in a letter to Pretium, parts of which Pretium published a few weeks later. The release quoted Strathcona as saying “there are no valid gold mineral resources for the Valley of the King (VOK) zone, and without mineral resources there can be no mineral reserves, and without mineral reserves there can be no basis for a feasibility study.” Strathcona also said that “statements included in all recent press releases [by Pretium] about probable mineral reserves and future gold production [from the VOK zone] over a 22-year mine life are erroneous and misleading.”
Led by Canadian Mining Hall of Fame inductee Graham Farquharson, Strathcona is the consultancy that confirmed Bre-X’s Busang gold “deposit” in Indonesia to be a fraud. That kind of history gives the firm major credibility, which is why Pretium’s share price plummeted following Strathcona’s resignation, losing more than 50% in two weeks in October to fall below $3.
Pretium’s response? Stay the course. The company had always planned to mill the entire 10,000-tonne bulk sample to determine how much gold it contained, as a check against the resource and reserve estimates completed by Snowden, the long-standing lead consulting firm at Brucejack. By its nature Brucejack demands this kind of check — its mineralization is highly heterolithic, with high-grade values in a low-grade matrix.
As an added data source, Pretium asked Strathcona to test the bulk sample, using a sample tower that pulled a representative 1 kg sample from each 100 tonnes of the bulk sample for assay.
“We were looking to compile as much data as we could,” said Joe Ovsenek, Pretium’s chief development officer. “If they’d done the job they agreed to do, we would have had at the end of the day a lot of data that we could have used to check accuracy.”
Strathcona completed the sample-tower process, but walked away from Brucejack before Pretium announced any bulk sample results. It became clear why a few weeks later, when news of the first bulk sample and sample tower results came out.
Sending the first 2,167 tonnes of bulk sample through a mill produced 281 oz. gold. The sample tower for those same tonnes returned a grade of 2.08 grams gold per tonne, which translates to 145 contained oz. gold.
That means the bulk sample and the sample tower generated gold estimates that differed by 94%.
Strathcona felt compelled to leave the project and warn investors it believes resource and reserve claims relating to Brucejack’s VOK and West zones are unreliable.
While dismayed over Strathcona’s moves, Pretium president and CEO Robert Quartermain is convinced work completed at the site to date is accurate.
In an interview with The Northern Miner (“Pretium’s Quartermain on the Strathcona fallout, and the road ahead,” T.N.M., Nov. 11–17), Quartermain discussed how the heterogeneity of the deposit means each crosscut sampled for the bulk sample would have produced different results. Whether or not some areas carried lower grades, he remained convinced the 10,000 tonnes would contain at least 4,000 oz. gold.
“Each of the five crosscuts is not an equal representation,” Quartermain said. “Let’s get all the material from the 10,000 tonnes, look at what those ounces are — we’ve projected 4,000 oz. — and then have a conversation.”
With confirmation that the bulk sample contains more than 4,000 oz., that conversation is now underway. The initial response was positive, with Pretium’s share price jumping $2.45, or 80% in a day, to close at $5.53.
“It’s validating for us, but we still have more work to do,” said Michelle Romero, Pretium’s vice-president of corporate relations. “These are the preliminary results. The final results will be out in the first week of December. Then Snowden will update the resource estimate using all the drilling that was done this year, and they do also take into account the results of the bulk sample.”
Pretium completed 16,800 metres of drilling mid-year targeting the areas where the bulk sample was taken. Romero says Snowden will use the drill results to update the overall resource estimate, and use drilling and bulk-sample data to build a local resource model specific to the targeted area.
It is a challenging deposit to model. To date, drilling just in the VOK zone has produced 125 intercepts grading better than 1,000 grams gold. It is difficult to incorporate high-grade hits like that into an overall resource estimate. When Snowden last did so, it concluded the VOK zone contained 16.1 million indicated tonnes grading 16.4 grams gold and 14.1 grams silver, plus 5.4 million inferred tonnes grading 17 grams gold and 15.7 grams silver. The smaller, lower-grade West zone added 4.9 million measured and indicated tonnes grading 5.85 grams gold and 267 grams silver, plus 4 million inferred tonnes grading 6.44 grams gold and 82 grams silver.
That resource formed the basis of a feasibility study for Brucejack, released in June. The study outlined a 2,700-tonne-per-day underground mine producing, on average, 321,000 oz. gold annually for 22 years. Project capital costs were estimated at US$664 million, but with a 42.9% pre-tax internal rate of return, the project would pay back its development capital in 2.1 years.
Pretium advanced Brucejack to feasibility at breakneck speed. In 2010 the company debuted on the market with a $6-per-share initial public offering and a $450-million cash-and-share deal to buy Brucejack from Silver Standard Resources (TSX: SSO; NASDAQ: SSRI). Since then the company has brought drilling in the VOK to 200,000 metres, defined a proven and probable reserve of 19 million tonnes grading 12 grams gold for 7.3 million contained oz., and won the prestigious Bill Dennis discovery award from the Prospectors & Developers Association of Canada.
By early 2012, Pretium shares were worth $18. Then the markets slid, pulling shares down to the $7 to $9 range. Strathcona’s departure knocked Pretium’s share price to an all-time low of $2.83.
That precipitous decline has lawyers circling. More than a dozen U.S. law firms have filed class-action lawsuits in New York on behalf of Pretium investors, all alleging Pretium misrepresented or exaggerated the resources at Brucejack, and used unreliable or misleading sampling methods at the site.
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