Shares of Canadian small gold producer, Pretium Resources Inc. (PVG, Financial) soared nearly 15%, closing at $9.28 a share on Monday, after results of gold production for the second quarter exceeded expectations.
Pretium Resources delivered 111,340 ounces of gold. In total, second-quarter gold output represented a 47.2% increase from the prior trimester. An anticipation that the miner would exceed expectations on gold output was already in the air as the stock began to climb in early July. But the announcement on Monday popped it over the 200-SMA line.
As a result, Pretium Resources is not so cheap anymore. Before acquiring shares, it is wise to wait for a significant weakness that is able to drop the share price far below the 100-SMA line at $6.2 per share.
If acquired today, as suggested by consensus, the stock appreciation will already be over 45%. But why not take more than double off the table instead? We are value investing- minded people and we like to buy low and re-sell high.
If you have the patience to wait until late July or early August, when the yearly lows in the price of gold tends to occur, you will greatly improve your chances to buy at a low price. At that time, the stock should trade book value at just 1.4 times versus a current 2.01 times and an industry average of 2.06 times.
Which catalyst will then trigger stock appreciation following summer season?
A 7% to 17.5% growth in gold production of 200,000 to 220,000 ounces in the second half of 2018 from first half level of 187,000 ounces is not chasing a chimera anymore, now that the production of the yellow metal has reached a stable state at Brucejack mine. So, I don’t think that the market will really be surprised with the levels of gold production the company is expecting for the next two quarters of 2018.
In my opinion, the real catalyst to watch here is another one: if the build-up of the stope inventory increases to 12 stopes in the third quarter of 2018, it will further advance the ore grade of the material with which the mill will be fed. That might determine such a boost in the production of the yellow metal that quarterly volumes will exceed the expected 27,500 ounces.
(Disclosure: I have no positions in Pretium Resources.)
