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A high-grade gold mine that Pretium Resources Inc. (TSX:PVG) plans to develop near Stewart, B.C. is generating a lot of buzz from mining analysts, at least one of whom thinks the company is a likely takeover target.
Pretium cleared the final regulatory hurdle earlier this week with the receipt of a Mines Act permit, following provincial and federal environmental approvals at the end of July.
A September Gold Report that focused on Pretium has several analysts singing the company’s praises.
“If Pretium gets all the necessary mining permits and licenses for Brucejack, the funding will come in short order,” Carsten Ringler of Ringler Consulting and Research told Gold Report.
But with gold prices falling below US$1,100 per ounce in July for the first time since January 2010, the concern for any new gold mine is that it may not be able to raise financing and may not produce at a profit, if gold prices fall below $1,100.
Brucejack’s attraction is the fact that it is a high-grade deposit and no serious environmental or social licence issues. The mine has a projected capacity of 504,000 ounces of gold per year for the first eight years and is projected to have an 18-year life.
Brucejack’s plans are based on a sustaining cost of US$448 per ounce.
“This is one of the few projects that would still be profitable at $800–900/oz gold,” Ringler wrote. “This is a really sexy and attractive project in my eyes.”
Joe Mazumdar, senior mining analyst for Canaccord Genuity Corp., said he thinks Pretium will become a takeover target, but not until the project is financed and in production.
“There’s not too many projects out there with this kind of grade,” Mazumdar said. “Then you put that together with the potential production profile and the stable jurisdiction, and now permitted – the biggest risk, obviously, is the financing.”
Pretium puts the mine’s capital cost at US$747 million. Canaccord puts the capital cost about US$100 million higher than that. At the end of the day, Mazumdar estimates the total cost to bring the mine into production could be US$945 million.
And once it is in production, he thinks a big mining company will come courting.
“The M and A activity right now is such that people can sit on their hands and wait for you to de-risk the project through permitting, through financing, throughstartups issues and get it intocommercialproduction,” he said.
Pretium’s biggest challenge now will be financing – not because of any shortcomings of the Brucejack project itself, but rather a general market malaise that has seen investors shunning the mining sector in general.
But if any project is likely to get financed, it would be Brucejack, Mazumdar said.
The Brucejack project will employ a workforce of up to 900 people during construction and 500 on a permanent basis over a 20-year period. The company is aiming to pour first gold in late 2017.
