Pretium Resources Inc. (TSX: PVG) is engaged in the acquisition, exploration, development and operation of precious metal resource properties in the Americas. The Company’s assets include Brucejack mine, Snowfield Property, Bowser Claims and the Porphyry Potential Deep Drilling (PPDD) Project. 

Key highlights 

Robust Q3 2020 performance: In Q3 2020, the group posted robust quarterly performance. The group sold 81,068 ounces of gold which contributed USD 153.2 million to the revenue. Net earnings stood at USD 31.1 million, as compared to USD 6.2 million in the previous corresponding period. The increase primarily resulted from higher gold prices realized on ounces sold at USD 1,935 per ounce compared to USD 1,486 per ounce in Q3 2019.

Source: Company 

Strong Free Cash Flows: On the back of robust operations coupled with a high realized price of gold, the company reported healthy cash generated from operations, which stood at USD 83.3 million compared to USD 77.8 million in Q3 2019. Free cash flow was reported at USD 66.8 million, compared to USD 65.1 million in the corresponding previous period.

Source: Company

Reaffirmed Production Guidance:  The management is confident and believes in achieving its FY 2020 production guidance. The Company produced 259,443 ounces of gold during the first nine months of 2020 and believes in attaining its gold production guidance of 325,000 ounces to 365,000 ounces at the Brucejack Mine. The average annual gold grade is expected to remain in the guidance range between 7.6 grams per tonne and 8.5 grams per tonne at an average gold recovery of 97.0%. 

Financial overview of Q3 2020 (Expressed in thousands of United States dollars)

Source: Company 

• In Q3 2020, the company posted revenue of USD 154.8 million, as against USD 132.7 million in the previous corresponding period. The sole reason for an increase in revenue was higher gold realization price.

• The company posted a high Net income of USD 31.1 million in Q3 2020, against USD 6.2 million in Q3 2019. The reasons behind this steep rise in net income were high gold realization price coupled with low interest and finance expense, which was partially offset by a loss on foreign exchange and higher corporate administrative cost. 

Risks associated with investment

The Company’s financial performance is mostly dependent on the gold prices, which directly affects its profitability, margins and cash flows. The price of gold is subject to volatility and it can be affected by various factors, such as the strengthening US dollar, increase in Interest rates, Inflation rates, demand and supply, all of which are beyond the company’s control. 

Valuation Methodology (Illustrative): Price to Cash Flow

Note: All forecasted figures and peers have been taken from Thomson Reuters

Stock recommendation

We are bullish on the gold prices and believe that despite a little pullback, gold, as an asset class would continue to remain in the limelight as uncertainty over the global economic growth is still prevailing. We believe that average realized gold prices per ounce would continue to expand, which would lead to margin expansions and higher cash flow generation. Further, the company has robust financial positions and reaffirmed guidance as well. Also, the company expects to generate a free cash flow in a range of USD 205-275 million in FY 2020. Based on the above rationales and valuation, we have given a “Buy” rating at the closing price of CAD 15.17 on December 17, 2020. We have considered Equinox Gold Corp, Kirkland Lake Gold Ltd, Yamana Gold Inc etc. as the peer group for the comparison.

1-Year Price Chart (as on December 17, 2020). Source: Refinitiv (Thomson Reuters)

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