Pretium Resources Inc.

Pretium Resources Inc. (TSX: PVG) is an exploration and development company and operates mainly through its Brucejack Project, located in northwestern British Columbia, Canada.

Key Highlights:

• Drilling Update: The company is planning to conduct 195,000 meters of drilling, which includes 113,000 meters of In-Resource drilling and 82,000 meters of Resource Expansion drilling within the Valley of the Kings deposit. Meanwhile, the company completed drilling of 1080 Level East and 1080 Level West intercepted high-grade gold mineralization up to 200 meters below and 200 meters east of the current Mineral Resource shell during H1FY21. The group identified visible gold mineralization in breccias along with the Bridge Zone Porphyry contact from the above zone. During H1FY21, the company reported a Mill throughput of 3,710 tpd, improved from 3,695 tpd in pcp. Gold recovery rate stood higher at 97.1% during the period, as compared to 96.6% in pcp.
• Improved performance: The company reported Stable revenue at USD 294.736 million in H1FY21, as compared to USD 293.127 million in pcp. Notably, net earnings jumped to USD 57.320 million in H1FY21, from USD 44.877 million in pcp. The above performance was supported by elevated realized prices of gold (USD 1,804/oz in H1FY21 v/s USD 1,677/oz in pcp). The company also reported its cash and cash equivalents of USD 202.5 million at the end of Q2FY21, increased from USD 174.8 million in Q4FY21.
• Increased Credit facility to support liquidity: In the recent past, the company has increased its loan facility to USD 350 million from USD 300 million. The above includes USD 100 million non-revolving term credit facility and a USD 250 million revolving credit facility. The company would use the above funds for refinancing the existing term loan and for general corporate purposes.

Q2FY21 Financial Highlight:

• PVG announced its quarterly result, wherein the group reported revenue of USD 152.308 million, down from USD 166.567 million in the previous corresponding period (pcp). The decline was primarily due to lower gold sales as compared to the previous corresponding period.
• Operating earnings stood lower at USD 49.665 million, from USD 60.551 million in pcp. The quarter was marked by lower cost of sales (USD 97.844 million v/s USD 99.895 million in pcp), and lower corporate administrative costs (USD 4.182 million v/s USD 4.822 million in pcp) and a significant fall in exploration and evaluation costs (USD 0.617 million v/s USD 1.299 million in pcp).
• Net earnings were reported at USD 30.725 million, as compared to USD 36.107 million in pcp. The quarter was marked by lower interest and finance expense (USD 3.942 million v/s USD 4.685 million in pcp) coupled with lower deferred income tax.

Q2FY21 Income Statement Highlights (Source: Company Report)

Risks: Volatility in the gold prices are likely to 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): EV to EBITDA

Stock Recommendation:

For FY21, the company expects its gold production within the range of 325,000 - 365,000 oz, while free cash flow is expected in between USD 120 – 170 million. AISC /oz sold is expected at USD 1,060 – 1,190 / oz, higher than USD 1,053/oz in H1FY21. We have valued the stock using the EV to EBITDA-based relative valuation method and have arrived at a double-digit upside (in percentage terms) potential. For the said purposes, we have considered peers like Kirkland Lake Gold Ltd, Alamos Gold Inc etc. Considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock at the closing price of CAD 12.88 on September 03, 2021.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

Technical Analysis Summary

One-Year Technical Price Chart (as on September 03, 2021). Source: REFINITIV, Analysis by Kalkine Group

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

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