1 Junior Gold Miner Trading at a Steep Discount

After its latest sell-off, junior gold miner Pretium Resources Inc. (TSX:PVG)(NYSE:PVG) is attractively valued.

| More on:
The Motley Fool
You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

Gold remains a solid hedge against uncertainty and is still considered to be one of the best safe-haven assets available. The latest market gyrations, along with the considerable economic and geopolitical fissures that exist globally, make now the time for investors to boost their exposure to gold. One of the best means of doing so is by investing in junior gold miner Pretium Resources Inc. (TSX:PVG)(NYSE:PVG). 

Now what?

Pretium is focused on developing the Brucejack underground gold mine located in Canada. The mine has gold reserves of just over eight million ounces and holds considerable potential, despite recent setbacks. Commercial production commenced during the second half of 2017, and the mine produced 152,484 ounces for the first six months.

However, fourth-quarter 2017 ore grades were lower than expected, which saw recovery rates fall to 95.8% and cause gold output to drop by 11,900 ounces compared to the previous quarter. Pretium also issued first-half 2018 production guidance of 150,000-200,000 ounces; on an annualized basis, that is at least 100,000 ounces fewer than the 504,000 ounces annually projected for the first eight years of the mine’s operations.

Worse-than-expected ore grades not only impacted production, but also saw Pretium restate all-in sustaining costs (AISCs) for the first half of 2018, which are now estimated to be US$700-900 per gold ounce sold. This is well above the US$446 per ounce forecast in the mine-feasibility study.

Because of these issues, Pretium’s stock tanked, plummeting by almost 38% over the last month, as the market expressed its disappointment with the results.

Nevertheless, the Brucejack mine, with an average ore grade of 14.1 grams of gold per tonne of ore, is one of the highest-grade mines to come online in recent years. There is every indication that Pretium can address the problem, and that ore grades will climb higher during 2018 and meet expectations.

The junior miner is in the process of establishing a grade-control program, which is expected to commence operations during the first quarter 2018 and should go some way to addressing the ore grade issues that arose during the fourth quarter 2017. Pretium has also applied to the appropriate ministries to boost ore production at Brucejack by 41% to 3,800 tonnes daily, as it focuses on ramping up operations at the mine. Once approved, this should give the mine’s gold output a healthy bump.

After the sharp sell-off, Pretium is attractively valued. It is trading at an 11% discount to the Brucejack mine’s post-tax net present value with a 5% discount rate applied, in accordance with industry methodology, of US$7.85 per share. When the considerable exploration upside associated with the project and the mine’s long life of 18 years is considered, it appears to be heavily undervalued.

So what?

Commissioning operations at a new underground mine is a complex process with many moving parts and risks; aside from the problems relating to ore grades, the process went relatively smoothly. It is fully expected that over time, ore grades will improve, leading to higher production and lower AISCs. This will give Pretium’s earnings and stock a healthy lift, making now the time for investors to acquire this junior miner at a significant discount.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Matt Smith has no position in any stocks mentioned. 

More on Metals and Mining Stocks

gold stocks gold mining
Metals and Mining Stocks

Gold Could Be on the Cusp of a Major Upside Move: Here’s How to Play it

Kinross Gold (TSX:K)(NYSE:KGC) stock is a relative bargain to play a recovery in the price of gold.

Read more »

Gold bullion on a chart
Metals and Mining Stocks

Is Barrick Gold (TSX:ABX) a Strong Buy? Profit Surges Almost 19% in Q2 2022

TSX’s top mining stock should be a strong buy in August after the gold miner reported a 19% profit growth…

Read more »

grow dividends
Metals and Mining Stocks

Barrick Gold Stock Looks Primed for Takeoff

Barrick Gold (TSX:ABX)(NYSE:GOLD) stands out to me as a glimmer of value in this choppy market environment.

Read more »

gold stocks gold mining
Metals and Mining Stocks

Agnico Eagle Mines: The Best Gold Stock of the Batch Right Now?

Agnico Eagle Mines (TSX:AEM)(NYSE:AEM) stock looks cheap ahead of a potential relief rally in the price of various precious metals,…

Read more »

TSX Today
Metals and Mining Stocks

TSX Today: What to Watch for in Stocks on Tuesday, August 9

The ongoing corporate earnings season and the U.S. Energy Information Administration’s latest short-term energy outlook report could keep TSX stocks…

Read more »

Hand arranging wood block stacking as step stair with arrow up.
Dividend Stocks

These 3 TSX Stocks Have Doubled Over 3 Years: Can They Do It Again?

Three TSX stocks whose share prices have doubled in three years are well-positioned to repeat history and reward investors with…

Read more »

TSX Today
Metals and Mining Stocks

TSX Today: What to Watch for in Stocks on Monday, August 8

Continued strength in metals prices could help mining stocks on the TSX open slightly higher today.

Read more »

Gold bars
Metals and Mining Stocks

This Imploded Gold Stock Has a Shining Dividend!

Barrick Gold (TSX:ABX)(NYSE:GOLD) is down around 50% from its high, making it a top contrarian pick for those lacking precious…

Read more »