Distorted grades, involvement of SEC sanctioned entities, and high turnover of mineral consultants – Pretium flies many red flags. (PVG:TSX / PVG:NYSE)
SEPTEMBER 6, 2018 — Pretium Resources owns and operates the purportedly high-grade Brucejack gold mine in Northwest British Columbia in Canada. Viceroy is short Pretium Resources, as our research suggests its mining results have been distorted and the equity likely worthless as the overindebted company bleeds cash over the next 12 months:
- Strathcona Mineral Services Limited (Strathcona), the mining consultancy that famously declared Bre-X to be a fraud, resigned from Pretium’s 2013 bulk sample program later stating, “…they will not have a mine producing 425,000 oz. a year for the next 20 years, as they have been advertising so far”. The entire Pretium investment thesis rests on the validity of the 2013 bulk sample program.
- After Strathcona’s resignation, Pretium hired Strategic Minerals LLC (Strategic Minerals), an entity owned and managed by disgraced investment manager Serofim “Sima” Muroff to handle the testing of its bulk sample program. Muroff was charged by the SEC for securities fraud after misappropriating millions of dollars of investor funds and siphoning away millions more. Our research suggests that Muroff has knowingly assisted Pretium in overselling the quality of Brucejack Mine to investors.
- The funds embezzled by Muroff were partially invested in numerous early-stage gold mining assets which to date have produced no gold. We believe Muroff’s entity was created to similarly distort gold grades for these gold mining assets. Muroff’s investors funds were also used to invest in equities and derivatives of other gold mining assets which we believe included Pretium.
- The overwhelming majority of our research indicates Pretium manipulated the results of its bulk sample program through an overreliance on samples taken from the Cleopatra vein, thereby artificially inflating Pretium’s grades and reserve projections for the Brucejack Mine.
- The manipulated bulk sampling test performed by Strategic Minerals was used by the courts in Wong v. Pretium Resources, 2017 as the basis of their decision that the Strathcona analysis was incorrect. This did not exempt the company from withholding Strathcona’s preliminary analysis from investors.
- Government documents indicate Pretium is moving approximately double the tonnage from the underground mine than disclosed to investors. This suggests reported grades and reserves are significantly inflated, a much greater amount of waste is being dumped into local lakes, and more explosives are being utilized. Pretium’s operational plan has experienced dramatic changes in a short amount of time, leading us to believe that management is scrambling to find consistent, high-grade ore to maintain the charade that its debt and equity are viable.
- Pretium founder and chairman, Robert Quartermain’s only mine operating experience at Pirquitas, an Argentinian silver mine owned by Silver Standard, resulted in a ~53% reserve cut and subsequent shutdown. A number of Quartermain’s management team left Silver Standard to operate Pretium.
- As of Q2 2018, Pretium has ~$700M of debt (excl. convertible notes) with an effective interest rate of ~15%. If Pretium can’t make or re-negotiate the payment, then Pretium may be unable to remain a going concern. We believe this deadline has provided an incentive for Pretium to inflate its results through the near-term depletion of the Cleopatra vein and take more rock out of the ground than disclosed and planned.
The implications of our findings on grade, tonnage and life of mine are damning and lead us to believe that Pretium’s equity is highly likely to be worthless in its current state, and its credit significantly impaired.
Viceroy believe Pretium bears striking resemblance to Rubicon Minerals, now operating as a shadow of its former self after revising mineral reserve estimates down ~90%.
We believe the most likely scenario is that Pretium’s assets are seized by its secured creditors as collateral.