Buy Pretium Resources After a Significant Fall

Pretium Resources is an interesting option. The miner beat consensus on 2nd quarter sales and earnings

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Monday, Aug. 13, has been a negative day for gold investors. On the London Bullion Market, the precious metal closed at $1,200 an ounce and dropped over $14 per troy ounce in just one trading day. Yesterday’s close was about $100 per troy ounce below the year-to-date cumulative average price of $1,300.48 and down 8.5% from the beginning of 2018.

The U.S. dollar is dominant. Despite a 1.3% drop yesterday to $95.17, the drift in the U.S. Dollar Index (DXY) remains positive. The yellow metal is inversely related to the U.S. dollar, and the rest follows.

Yesterday was not positive for U.S. publicly traded gold stocks’ investors either. The VanEck Vectors Gold Miners ETF (GDX, Financial), one of the most liquid vehicles traders and investors have to get exposure to gold mining companies, lost nearly 3% to $19.98 per share on the New York Stock Exchange. The fall and trailing 12-month trend are illustrated in the below chart powered by GuruFocus below. On GuruFocus.com, you can find other fundamental and technical charts like The VanEck Vectors Gold Miners ETF (GDX).

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Source of the printscreen: GuruFocus.com

For the 52 weeks through Aug. 13, the benchmark, which includes most of the major North American publicly traded miners, has fallen 11.44%.

The downtrend in the price of the commodity also has a positive implication for those investors who are screening for value in the universe of U.S. publicly traded gold mining stocks. Today more than ever, the industry represents an opportunity for the category of investors who seek stock appreciation, and thus value, through a buy-low, sell-high investment approach.

Pretium Resources Inc. (PVG, Financial) may represent an opportunity. Second quarter financial results have pushed the share price of the mining company above the 100 and 50-SMA lines. However, it is already in a new descending phase and may slide to another low.

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The Relative Strength Indicator, or RSI -14 days, is approaching the higher end of the 20 to 70 range. Statistically, the stock is already becoming overbought at levels below the midst of a 52-week range of $6.17 to $12.44 per share. The current share price is $8.66 per share.

Regardless of how volatile the stock is with regard to changes in the price of gold, a prolonged downtrend in the commodity will surely cause another meaningful loss in the market value of Pretium Resources for a retreat to below 100 and 50-SMA lines levels.

It is very difficult to predict whether the next fall will be such that the share price hits the 52-week low of $6.17 per share. When looking at the US Dollar Index (DXY), which seems not to stop its upward trend, feelings are that the market is going to create one of the most compelling entries of the last 12 months of trading.

Pretium Resources Inc. is a small, young gold producer, mineral explorer and developer of assets that acquires. That is the case of Brucejack deposit – the company’s gold-producing asset – where the completion of production ramp-up should drive expected gold output growth in the second part of 2018. The Brucejack project comproses six mineral claims and four mining leases, which together cover a 3,304 hectares area in northwest British Columbia.

In the first half of 2018, the high-grade gold deposit produced 187,000 ounces of gold and for the second part of this year, the miner is anticipating 7-17.5% growth in gold production of 200,000 to 220,000 ounces.

But that is not all. At the Brucejack mine workers are building up a stope inventory. If the building-up process will continue to advance and create the 12th stope, the mill facility of Brucejack mine will likely be supplied with higher grade material. Why? Because the deeper, the higher the grade of ore at Brucejack underground is, according to explorations.

So that means that gold production for each of the next two quarters of 2018 may be higher than what Pretium Resources is guiding today. This is the catalyst.

As of August, there were five analysts who released their recommendation on Pretium Resources. All of them are for a buying approach. The rating is 2 out of a total of 5. The average target price is $13.66 per share as a mean of five estimates that range between a low of $10 per share and a high of $16.50 per share. The average target price is already a nearly 58% premium from the current share price.

The positive momentum on which Pretium Resources is building its fortunes already generated an increase of more than $72 million in the liquidity available in cash on hand to $142.5 million at the end of the second quarter.

Revenues and earnings of a mining company depend on the price of gold but at Pretium Resources, an improved second quarter output of 111,340 ounces of gold produced at lower costs per ounce of gold sold really made the difference. Total cost of sales was $749 per ounce of gold sold, and the all-in sustaining cost was $648 per ounce of gold sold. These levels of cost were even lower than those of Barrick Gold Corp. (ABX), one of the largest producers of gold in the world.

With 26 cents per share, Pretium Resources beat consensus on second quarter adjusted earnings by 20 cents. That was a positive turnaround from a loss of 2 cents in the comparable quarter of 2017. The bottom line was backed by revenue of $146.5 million. The miner beat consensus on revenue by $63.02 million.

Pretium placed 115,309 ounces of gold on the market in the second quarter of 2018 and realized an average price of $1,278 from the sale of one ounce.

Disclosure: I have no positions in any security mentioned in this article.