Pretium Resources Inc.

Pretium Resources Inc. (TSX: PVG) is an exploration and development company that operates through the exploration, and development of precious metal resource properties in the Americas. 

Key Highlights:

• Encouraging Drilling Activity: Recently, the company conducted the Phase 2 program high-grade gold mineralization with five intersections assaying above 1,000 grams per tonne of gold. This was conducted after the successful Phase 1 drilling program in February 2021. The company continues to intersect high grade gold mineralization in the North Block resource expansion drill program at the Brucejack Mine in British Columbia. Following the positive outcome, the group is planning to conduct Phase 3 and Phase 4 drilling programs in the near future.

• On track to achieve 2021 operational and financial guidance: Despite the COVID-19 impact, the group expect to produce between 325,000 and 365,000 ounces of gold at an AISC between USD 1,060 and USD 1,190 per ounce of gold sold.
  

• Surge in Free cash flow: In Q1FY21, PVG showcased prudent cost management, which has resulted in higher profitability and subsequently pushed the cash from operations. During Q1FY21, the group recorded free cash flow at USD 50.969 million, increased from USD 41.803 million in Q1FY20. An increase in cash flow levels indicates higher financial flexibility and is a key positive.
  

• RSI suggesting a potential pullback in the price: On the daily chart, PVG stock prices are trading in a falling channel pattern and sustaining above the lower band of the pattern. The momentum oscillator RSI (14-period) is bounced from the oversold zone and now trading at ~34.35 level, indicating a possibility of price reversal. However, prices are trading below its below 50-period SMA, acting as the resistance zone for the stock. An important support level for the stock, is placed at CAD 11.20, while key resistance level is placed at CAD 13.20.

Technical Analysis Chart, Analysis by Kalkine Group

Q1FY21 Financial Highlight:

• PVG announced its quarterly result, wherein the company posted USD 142.428 million, higher than USD 126.560 million in the previous corresponding period (pcp). The increase was driven by a 12.5% surge in gold prices from the previous corresponding period (pcp) coupled with higher gold production on y-o-y basis.
• Operating earnings stood at USD 43.916 million, higher than USD 35.749 million in Q1FY20.
• Net earnings were reported at USD 26.595 million, surged from USD 8.770 million in pcp. The surge was supported by higher operating income, lower interest and finance costs combined with lower deferred income tax.

Q1FY21 Income Statement Highlights (Source: Company Report)

Risks: Price volatility in the gold prices would affect the company’s income and cash flows. Furthermore, any restrictions imposed on account of COVID outbreaks would lead to lower production.

Valuation Methodology (Illustrative): Price to Cash Flow

Stock Recommendation:

For FY21, the company expects its annual production within the range of 325,000 - 365,000 oz, as compared to the previous year production of 347,743 oz. All-in Sustainable Costs (AISC) per ounce sold is expected in between USD 1,060 – 1,190 /oz, while the company expects is free cash flow in between USD 120 million to USD 170 million for the year. We expect the gold price to remain elevated despite the recent pull back as uncertainties over global economic recovery still prevailing. We have valued the stock using the Price to CF-based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered peers like Kirkland Lake Gold Ltd, First Quantum Minerals Ltd etc. Considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock at the closing market price of CAD 11.86 on June 30, 2021.

One-Year Technical Price Chart (as on June 30, 2021). Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

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