Investing

Pretium Resources (NYSE:PVG): Attractive Take-Over Target With Sound Financials

The Canadian gold miner Pretium Resources is positioning itself as great take-over target. The company is generating growing free cash flows after lockdowns weighed down output in their only gold mine Brucejack in British Columbia, Canada.

Last quarter, for the first time since the establishment of the enterprise, Pretium Resources’ cash position exceeded its debt after payment of its loans. However, this gold miner is also facing the rising costs of increased gasoline prices and the ongoing COVID-related costs. All-in sustaining costs (AISC) in the second quarter of $1,099 per ounce sold were higher than the comparative period in 2020. However, the still relatively high gold prices boost profitability. For the first six months of the year, their AISC is $1,053 per ounce, but this could creep upwards as diesel prices have surged even more in Q3. After a corona outbreak among employees it had to shut down operations temporarily last quarter which slightly harmed results. Interestingly, despite this unexpected break, their output only dropped four percent signalling the quality of the high grade soil on the Brucejack mining site.

Green Sustainability Path Of Pretium Could Drive Down AISC

The company has committed to purchase seven battery electric haul trucks to replace their fleet of 12 diesel-powered underground haul trucks, with the first one already in operation. Mobile combustion of gasoline and diesel contributed to roughly 68% of the greenhouse gas emitted from operating the Brucejack mine in 2020. After the rollout of this multi-year plan, we forecast a reduction of approximately 24% or 6,900 tons of carbon dioxide equivalent annually from the implementation of this initiative. As diesel costs remain high and are most likely to be taxed more in the progressive Canada of Trudeau, this shift can be considered a smart one. However, in terms of ESG standards this will boost the already high ranked ESG rating of the company, which is already among the top performers within the industry. This decision will most likely attract even more investors, providing equity cushioning insolvency issues in less prosperous times.

The Board Is Not Taking Risks, Which Is A Good Thing

During last quarters meeting directors were very reluctant to say anything about potential dividends or share buyback programmes as they explained to rather stay focused on decreasing their debt level and maintaining a healthy revenue stream. However, part of that could be a potential asset purchase at the end of next year. For now, the company remains focused on improving its own site and drilling for new high grade ores, as the current site is only sufficient for another one year of mining. After that, new sites have to be explored, so positive drill results are essential. The board of Pretium Resources wants to assure the long term viability of the company before rewarding shareholders. Paradoxically, this could benefit long term investors more than if the company would spend millions on investor compensations.

Figure 1- Pretium’s balance sheet has improved tremendously due to higher output and rising gold prices

The results of the following quarters Q3 and Q4 of 2021 will not show any shocking results in terms of output. However, in terms of exploration and drilling positive results are the key point to look at. Investors will want to look at the drilling results and assess whether the mine has a longer lifetime than currently can be disclosed. On the other side, gold prices remain strong and have been creeping up the last few weeks which obviously positively impacts the overall business. As stagflation fears are surging, gold prices could benefit from increased risk-off tendency after months of bullishness. However, within the industry Pretium Resources (PVG) is an example of excellence.

Disclaimer: The writer of this article holds Pretium Resources (NYSE:PVG) stock, this article should not be interpreted as investment advice or anything like that.

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