While it won’t come close to covering the entire $747-million price tag to build the Brucejack gold mine in northwestern B.C., an $81-million strategic investment by China’s Zijin Mining in project owner Pretium Resources (TSX: PVG; NYSE: PVG) is a good start.
Zijin Mining’s investment arm, Xinxing Global, is buying 12.8 million Pretium shares in a private placement priced at $6.30 per share, for a 9.9% interest in the junior.
In a release, Pretium said the deal constitutes part of the planned equity component of the financing needed to bring the high grade but remote project to production.
“Zijin’s investment positions us well at a critical stage in our advance to production,” Pretium’s CEO Robert Quartermain said.
“Zijin is a well-capitalized shareholder, and as fellow shareholders, we value their long-term outlook and commitment to gold, and developing our Brucejack project as a high-grade gold mine.”
The state-owned mining company is the largest gold producer and second-largest copper producer in China. It also owns gold and base metals assets in South America, Australia, Asia, Africa and Russia.
Pretium, which expects to release a comprehensive financing plan for Brucejack early in the new year, will use the Zijin money for capital spending, including procuring long-lead items and camp infrastructure at Brucejack. The financing is expected to close on Jan. 16.
Ash Guglani, a mining analyst at Salman Partners, confirmed that the investment — coming at a time when development money for mining projects is hard to find — is good news for Pretium.
“This is a positive for the company as it is able to raise equity and strengthen its balance sheet [$64 million at the end of Sept. 30] in a weak environment, with a long-term strategic investor,” he said in a note. “We maintain our ‘buy’ recommendation with a target price of $12 per share.”
Zijin can nominate one director to Pretium’s board and have the right to participate in future financings to keep its 9.9% stake. The shares are subject to a four-month hold period.
Pretium’s largest shareholder to date remains Silver Standard Resources (TSX: SSO; NASDAQ: SSRI), with a 14.8% interest.
While CIBC World Markets’ Jeff Killeen estimates the deal is 4% dilutive to CIBC’s Pretium valuation, and has lowered his price target for the stock to $11 from $11.50, he noted that the issue price of $6.30 per share (a 3% discount to the company’s last closing price) represents an attractive cost of capital for Pretium.
The mining analyst noted the deal could indicate more involvement by Zijin in Pretium’s upcoming financing plan.
“The strategic investment represents a third-party validation of the project,” Killeen wrote in a note. “We also believe the investment by Zijin at this phase in Brucejack’s development may be an indication of its potential interest in securing a future stream or offtake agreement for gold concentrate from the project.”
To fund Brucejack — 65 km north of Stewart, B.C. — Pretium is considering all options in addition to equity, including forward sales, high-yield debt, convertible notes, gold-linked bonds, project debt, streaming and royalty agreements.
The junior is permitting a 2,700-tonne-per-day underground operation at Brucejack. The company expects to receive permits in the first half of 2015, followed by a production decision and the start of construction, also in the first half.
Commercial production is targeted for 2017.
The mine could produce more than 500,000 oz. gold annually over its first eight years of production, and 400,000 oz. per year for the rest of its 18-year mine life, according to a June 2014 feasibility update.
Using a base-case US$1,100 per oz. gold price and a US$17 per oz. silver price, the feasibility study calculated the project’s after-tax net present value at US$1.5 billion at a 5% discount rate, and its internal rate of return at 28.5%.
Brucejack’s Valley of the Kings zone hosts 6.9 million oz. gold in proven and probable reserves contained in 13.6 million tonnes grading 15.7 grams gold per tonne.
Pretium shares gained 15¢, or 2%, to $6.65 at press time. The company has traded in a 52-week window of $4.60 to $9.43, with 116.8 million shares outstanding pre-financing.