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Interview: Pretium’s Quartermain on the Strathcona fallout, and the road ahead

The following article is reprinted with permission from CMJ’s sister publication The Northern Miner.



The following article is reprinted with permission from CMJ’s sister publication The Northern Miner.

Pretium Resources (TSX: PVG; NYSE: PVG) president and CEO Robert Quartermain spoke with The Northern Miner about the controversy that’s swirled around the company since the shocking Oct. 8 resignation of highly regarded Strathcona Mineral Services as a consultant at the company’s Brucejack gold project in B.C., and plans for the company going forward. The following is a transcript.

The Northern Miner: Has this been the longest three weeks of your life?

Robert Quartermain: Well, I’ve been in the business now since 1975, almost 38 years, so yes, it’s certainly been a long three weeks. You know, for myself and for my fellow shareholders, I think the key thing is that we continue to drill off high grade at the Brucejack project and continue to advance the project going forward, and we’ll be able to move beyond this.

TNM: Broadly, what has happened with Pretium in the last three weeks?

RQ: As it relates to the two QPs [qualified persons], when we started the bulk sample program – and the reason for doing the bulk sample was to look at validation of the resources which had been outlined by Snowden in November 2012 – what we wanted to do was get local data and be able to do local conditioning of the model against the broad model and use that for the validation against the resource (estimate) and to the probable reserve which we’ve used at the Valley of Kings.

TNM: When was Strathcona hired?

RQ: Strathcona was hired late last year. They started their work in the spring. As part of the underground bulk sample, we also decided to employ a sample tower. You may be familiar with that – it’s been used in other Canadian projects – where if you’re doing a bulk sample, you’ll actually run some of the material through the sample tower. For every 100 tonnes of material, it takes a 1 kg sample – so 0.01% of the total material – and you’ll get an assay for it.

What we wanted to do was determine whether or not that was a valid methodology as part of the process to help us characterize the style of mineralization. Because one of the challenges that we had was that the style of mineralization at Brucejack is very high grade, and we know it is a very heterolithic deposit – you get very high grade values in a low grade matrix. That’s the question to address. And both Strathcona and certainly Snowden would agree there’s a great deal of gold at the Brucejack project, and sometimes very spectacular gold that we have in the VOK [Valley of the Kings].

The issue we were focusing on is determining the degree of influence that each of these high grade samples should have on the surrounding volume. In the case of using Snowden, which of course is a world class estimator, they have been to the site and in discussions with us, and looking at the data, felt that the MIK [multi-indicator kriging] methodology is one where you try to reduce the kind of conditional bias that you have in the resource and so felt that was the appropriate methodology.

And so they’ve calculated for us this resource. Strathcona, of course, are more focused on mining. They don’t do resource calculations. They were brought in to determine whether the sample tower could assist in our data collection and providing data for the validation.

Our plan had been with Snowden, that we would process all the material anyways through the mill, and that would be the final validation, i.e. if you take 10,000 tonnes from underground and look at the gold you recover, that would be a good validation back to the model. Bringing Strathcona in was only a part of the set along the way.

And you know, I think what occurred along the way is, perhaps Strathcona disagreed with some of the conclusions Snowden has, and Snowden continues to validate their conclusions based on their understanding of the methodology.

And they have a difference of opinions as to the best method to validate the resource. Strathcona took the opinion that we believe the sample tower data will do it, and Snowden was of the opinion that the sample tower was probably irrelevant, that you probably need to process the full 100 tonnes, which is largely what we did.

And in doing that, with the first round, we showed that the actual gold we recovered was about 94% higher than the sample tower would have predicted. And so, it put again into question, in a heterolithic deposit, whether a sample tower was an appropriate medium or step within it. And that was one of the determinations we had done with the program.

What we had hoped is, we would have the professional co-operation from two internationally recognized groups, in order to go through with the mandate that started in the spring with them, which is the two methodologies, one of the sample tower and the other of the full milling, and looking at that reconciliation at the end of the program.

TNM: You’ve talked about bringing in a new third party?

RQ: Yes, Snowden has indicated that they would bring in another third party independent review of the mineral resource update. And what we want to do in there is incorporate all the data that we can, insofar as Strathcona had custody of the data for the sample tower, we would be able to incorporate that into the model and be able to show its application.

I think it’s good for us to be able to do that, in one aspect from the overall industry. Certainly the overall industry is under a bit of duress, those of us in the junior sector, and with gold prices being down, I think we need to get all the data we can to incorporate into the model and then be able to speak to that with the most robust data that we can.

TNM: So the third party is going to look at the tower results, too?

RQ: To the extent that we can and they can opine on them, then yes, we will have whatever third party we have come in and look at all the data we’re able to collect. We’re still getting the final data from the sample tower – it’s taking longer to get that data because we’re doing detailed metallic screens on it. But once we have that data, yes, we would look at Snowden’s resource model to the extent that we can and then certainly have that reviewed by a third party.

TNM: The sample tower results are almost ready?

RQ: No, no. Those won’t be ready until well into next year. As we pointed out in our news releases, getting the sample tower data is taking longer because it’s very specific assaying that needs to be done. The metal screening on each of the samples is taking a little bit longer to get through the lab, and so that data won’t be through until early in the new year. As we had disclosed, the results of the Strathcona report wouldn’t have been available until Q1 of next year.

TNM: The stock price fall that happened when the bulk sample result came out (on Oct. 22, 2013), was that because people looked at the 4 grams gold per tonne grade and compared it with the much higher reserve grade?

RQ: Oh, no, I don’t believe so. I think it was just from the fact that you had a qualified person just withdraw from a project part way through it. Based on the modeling we’ve done, you have to look at it holistically.

TNM: Sorry, I mean the stock drop on the 22nd – was it related to the grade of the bulk sample?

RQ: No
, I think the grade would be, as we indicated to the market, with respect to the underground bulk sample, we were extracting in areas of no grade, low grade, medium grade and high grade, and the material that was to the west, in the 585, we had expected to be lower grade than the overall reserve grade, because in testing the model we had to look at that variation. So, no, I believe the continued movement in the share price has just been the reflection since the resignation of Strathcona, and then us continuing to discuss and get out and talk about the project, and how we continue to advance it forward.

The fact is there’s gold here, very high grade gold as evidenced by the news release we just put out. That fall happened one day and, as you know, we put out a news release two days later and the stock was up 20%, and more or less captured some of that downfall because we had some very spectacular results out.

That’s the thing that this project continues to deliver: over the course of the last few years, we’ve been able to isolate the main mineral corridor where the gold is located and are able to consistently go in there and hit high grade material.

And insofar, as you point out, the shares were down one day and then two days later they certainly reacted very positively to those results.

TNM: Are you backing off the idea that there will be 4,000 ounces of gold in that 10,000 tonne bulk sample?

RQ: No, not at all. We believe there will be at least 4,000 ounces there, yes.

You have to get back to the fact you can’t look at this linearly. Each of the five crosscuts is not an equal representation. As I pointed out before, it is a variable continuum. We focused on low-grade, high grade and the very high grade. Let’s get all the material from the 10,000 tonnes, look at what those ounces are – we’re projecting 4,000 oz – and then be able to have a conversation around whether we recovered those materials, whether we were higher or lower in that regard. But we need to look at all the data, because you can’t look at each crosscut in isolation, you have to look as it relates to all five crosscuts.

We’re taking a global model and are now testing it. We’re taking a lot of drilling which will help us do the local conditioning, and the detailed drilling we can now do will tell us exactly how much gold we should have anticipated from each of these crosscuts, where there are these overall 4,000 ounces we’re expecting to get.

TNM: There’s this incredible sentence in your Oct. 22 press release, quoting Strathcona, which states, “… there are no valid gold mineral resources for the VOK zone, and without mineral resources there can be no valid mineral reserves, and without mineral reserves there can be no basis for a feasibility study.” What specifically did they mean by “no valid”? The grade is not valid? The resource category?…”No valid” is a vague term here, in a sense.

RQ: I know, and that was a choice of Strathcona. Again, I think that relates to Snowden’s resource estimate which Snowden validates. They take the opposite view, that the resources up here are very valid. And so it is a commentary on Snowden’s work, and that’s why we put this down as a bit of a disagreement, with respect to the QPs, on the resource.

The resource which we have published on the project has been prepared by Snowden, who are internationally recognized and have had 25 years in the business. There are many operating mines that have resources that they have prepared. So it’s their resource we’re looking at validating, and it was on their resource that Strathcona made their comments.

TNM: A broad question about high grade deposits: how do you determine the best upper cut-off grade to use? You have an upper cut-off of 430 grams gold per tonne. Where does that number come from?

RQ: It’s not so much high grade, it’s one where we look at and condition each value which is greater than 400 grams per tonne. As I pointed out, this deposit is heterolithic, i.e. it has some low grade – a lot of material at 1 gram, 2 grams – and then very high grade, which is kind of above 100 grams and then into the kilo hits. You’ll see in the news release we put out last week, we had another 17 kg hit in it, right? You’re looking at something which is running almost 500 to 600 ounces per tonne.

What we have to do is look at, under the multi-indicator kriging, that those values are limited in their extent. That’s part of the challenge here: how far do they carry and how much value do you put on them volumetrically?

And so if you look at and plot the population from a five-gram cut-off, and we used a five-gram gold equivalent cut-off, from five grams up to our upper limit where we have about 42 kilograms, then at around I believe the 95th percentile that comes out at around 400 grams.

So anything above that has been looked at specifically as to its location within the population, and how much weighting it should have in the model. And then anything below that has just been normally conditioned.

TNM: Back to the 10,000-tonne bulk sample, are you going to do additional bulk sampling because of what’s happened? Has anything changed in your plan?

RQ: No. The 10,000 tonnes is what is legislated by the government. We can do 10,000 tonnes every five years. And so we designed this to be able to get the most robust data that we could to go back and use is to validate the broader model. In essence that’s what we’re doing here: we’re taking the localized data that we now have and are able to take that back to the more global model, which is the November 2012 model, and look at its validation and its application.

And from that, it would be able to tell us when we’re doing the detailed mine plan drilling, what kind of drill density and spacing do we need to do in moving indicated resources or probable reserves into the proven category. So that’s part of the exercise as well.

TNM: So there’s been no change in the plan.

RQ: No change in the program at all. From what we started last March to where we are, the crosscuts are exactly where they are, the lateral drifts are where we intended, though we modified and dropped two small lateral drifts just to meet our 10,000 tonnage. And then we’d originally planned to do about 15,000 metres of detailed fan underground drilling, and we’ve done about 16,500 metres.

So the program as we set it out is what we’re continuing to go forward with, and all the data we get from that, including sample tower data, we will incorporate into the final results, which will help us go back and validate to the original 2012 resource model.

TNM: Are you under any pressure to do more bulk sampling?

RQ: Not at this time, no. I think what we need to do is get all the data, look at the results, look at the validation, and from that determine if there is any additional work that may need to be done.

TNM: Can you explain the constraint of the 10,000 tonnes? That’s related to provincial legislation and permitting rules?

RQ: The provincial legislation allows you every five years to extract a 10,000-tonne bulk sample for processing purposes and testing purposes.

TNM: What kind of permitting would be needed if you wanted to bring that up to 50,000 tonnes or some number like that?

RQ: Well, then you’d have to probably get into a small mining requirement or, you k
now, we could always approach the Mines Branch and see if there would be a possibility to go larger. But at this point in time, we designed the 10,000 tonnes to be able to give us what we think is the appropriate data for the validation.

The best thing for us now is to get the milling of the underground material completed, look at what we’re going to recover, and then from that look at all the data and the conditioning of the local model to the global model, and from that, what other supportive activities we may need with respect to the resource which we’ve outlined to date.

TNM: What would be the timeline of the news from Pretium for the rest of the year and beyond?

RQ: We will continue to have drill results. We’re drilling underground, and so we’ll have drill results out over the next month or so as we complete our underground drilling. We, of course, will have results from the underground milling, and we will indicate how much gold we’ve recovered from the milling. From that, we’ll have a validation of what we’ve recovered from the milling back to a local model, and then validate that back to the broader model.

We will also do an updated and revised resource for the Valley of the Kings, incorporating all of the data we’ve recovered to date. And then from that we will go back and revise and update the feasibility study which we completed last June to take into account all this new data, and make updates and modifications to it accordingly.

TNM: So, if I’ve got this right, the only change in your plan is you may have a new third party come in to look at the resource update?

RQ: Well, yes, another third party coming in and doing essentially what Strathcona would have been doing. So yes, Snowden will do its work, and a third party will come in and review that data.

So basically everything is going and staying on course as we are. I think the key thing is we have outlined some very high grade gold – that’s not in question here – and so it’s a matter of how do you determine the influence of those high grade samples in the lower grade material and come up with the mine plan that we have based off of Snowden’s work, and we’re basically validating that.

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