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Law firms eye feeding frenzy at Pretium

Departure of Toronto mineral resources consultant ignites controversy; raises questions about junior's work at B.C. gold project

While Pretium Resources Inc. continues to explore for gold at its Brucejack Project in northern British Columbia, a disagreement between the junior's two technical consultants, Snowden Mining Industry Consultants of Perth, AU and Toronto-based Strathcona Mineral Services Ltd. and the resignation of Strathcona in early October has ignited a firestorm of controversy over the validity of the gold resource reported for the project's Valley of the Kings zone in 2012, and sparked a flurry of class-action lawsuits against the company.

At least eight law firms specializing in shareholder rights cases filed suit in late October, accusing Pretium of misleading its investors in violation of U.S. and Canadian securities laws. Specifically, the complaints allege that Pretium failed to disclose that it had not acquired credible evidence demonstrating the quantity or quality of gold resource and reserve estimates at its Brucejack gold project in northwestern British Columbia.

Brucejack is part of a largely unexplored land package of more than 103,000 hectares (254,518 acres) located about 65 kilometers (40 miles) north of Stewart in northwestern British Columbia. The focus of the project is the Valley of the Kings Zone, where Pretium has uncovered many extreme-grade gold intersections within a low-grade gold quartz stockwork system.

Pretium said this is an unusual style of gold mineralization, but the extreme grade hits have been encountered consistently, and the "hit rate" has improved since 2009, demonstrating that the company is identifying the high grade areas.

Bulk sample woes

Until this fall, exploration and development of a gold project at Brucejack appeared to be moving forward smoothly for Pretium.

The company completed a feasibility study in June that envisioned construction of a 2,700 metric ton per day bulk mining operation with total production of 7.1 million ounces with average annual production ranging from 425,700 oz (first 10 years) to 321,500 oz over 22 years life of mine.

Pretium estimated the Valley of the Kings contained probable mineral reserves of 6.6 million ounces of gold and 5.3 million oz of silver (15.1 million metric tons grading 13.6 grams-per-metric-ton gold and 11 g/t silver), while another area of mineralization on the Brucejack property, the West Zone, hosts proven and probable mineral reserves of about 700,000 ounces of gold and 30.0 million oz of silver (3.8 million metric tons grading 5.8 g/t gold and 243 g/t silver).

The company also raised more than C$27 million in two private placements in September, bringing to about C$34 million its total working capital.

But problems began to surface when Pretium undertook a 10,000-metric-ton bulk sample program designed to validate the block model used to estimate the mineral resource for the Valley of the Kings in November 2012.

"We wanted to generate as much data as possible within the constraint of a legislated limit of a 10,000-metric-ton excavation," Pretium officials said in a November 2013 presentation.

But Strathcona and Snowden differ on how (and when) to use the bulk program data to reconcile the Valley of the Kings November 2012 Mineral Resource estimate. The consultant also critiqued the basis for the 2012 mineral resource estimate, and raised questions about Pretium's disclosure of the concerns to the public.

Strathcona, which is credited with famously exposing Bre-X as a scam in 1996, is known for its careful approach to estimating mineral resources and reserves.

In its resignation letter, Strathcona said, "There are no valid gold mineral resources for the [Valley of the Kings] zone, and without mineral resources there can be no mineral reserves, and without mineral reserves there can be no basis for a feasibility study," Strathcona said.

The firm also said Pretium's "statements included in all recent press releases about probable mineral reserves and future gold production [from the Valley of the Kings zone] over a 22-year mine life are erroneous and misleading."

When it withdrew, Strathcona advised Pretium that it had previously asserted similar views critiquing the Snowden resource model for the Valley of the Kings, accompanied with "recommendations" for public disclosure of the preliminary bulk sample data supporting their conclusions. At one point, these assertions, conclusions and "recommendations" were made on the basis of about 20 percent of the underground drilling results, no assay results from the sample tower and no results from production. According to Strathcona, the proper way to evaluate the bulk sample from Valley of the Kings is to take a small amount of material (a "sample tower") for analysis.

Snowden, however, stands by the 2012 estimate, and believes that because it was a bulk mining estimate, the most accurate way to validate it is to produce gold from the entire bulk sample excavation, Pretium said.

Snowden also expressed concerns that Strathcona's sample tower approach might not be valid for use in the bulk sample program at the Valley of the Kings, given the high-nugget coarse gold environment and stockwork nature of the mineralization.

In early October, Pretium reported that processing of the bulk sample had commenced at a custom mill located in Montana, and six days later reported that Strathcona had withdrawn from the program, after raising questions about the validity of the November 2012 mineral resource estimate. Processing of the bulk sample, however, was proceeding as planned.

The amount of gold produced from the entire 10,000-metric-ton bulk sample will be used to reconcile the Valley of the Kings November 2012 mineral resource estimate, prepared by Snowden.

Pretium said it anticipates that a total of about 4,000 ounces of gold would be produced from the material excavated for the bulk sample program, but two weeks later, preliminary mill results from the processing of the 2,167 metric tons of bulk sample material contained in a 426585E cross-cut, recovered 281 ounces gold - 94 oz in gravity concentrate, 174 oz in flotation concentrate and 13 oz in tailings - along with a total of 532 oz silver.

Proof in final mill results

Pretium and Snowden maintain that the mineral resource data and subsequent reports are valid. "We are disappointed by Strathcona's decision to withdraw prematurely from the bulk sample program," said Pretium CEO Robert Quartermain.

Preliminary figures from processing the 426585E cross-cut showed there was 94 percent more gold produced from the mill than was estimated from the sample tower results for the same material, the company said.

"We are satisfied with the results of the initial bulk sample processing, and are confident that the results from the mill will provide the conclusive outcome that our investors expect. The underground drilling and associated development to date has demonstrated that the Valley of the Kings deposit contains significant high-grade gold mineralization," said Quartermain.

The final mill results for the bulk sample will be available after all testwork had been completed in late November or early December, the company added.

Strathcona was responsible for the sample tower operations at the Brucejack Project and withdrew from the Program on October 8, 2013.

"Snowden has advised us that the true test of the resource estimate will only come from the reconciliation results between the ultimate grade of the bulk sample (as defined by produced metal and metal accounting) and the grade of the resource estimate for the same volume," Quartermain added.

Pretium's shares fell at least 30 percent after Strathcona resigned and shareholder rights law firms in New York and Vancouver began circling the scene of what they believe will become substantial litigious carnage. The lawyers are currently issuing calls for Pretium shareholders to join their class-action lawsuits.

In addition to charging Pretium with making false and misleading statements, some of the complaints also allege that the company and a major shareholder sold more than C$580 million of Pretium securities at artificially inflated prices a few days before Strathcona resigned and its concerns about the Brucejack gold project became public.

Extensive 2013 drilling

Pretium reported program drilling consisting of 16,789 meters in 201 holes and confirmed the projection of high-grade gold mineralized domains. This drilling represents about 10 percent of the 174,000 meters of total drilling in about 2 percent of the total resource volume, the company said.

Program drilling concluded in September with final assays released in October.

A highlight of work in the third quarter was the discovery in July of the Cleopatra vein, which was first encountered while excavating the 6258015N east drill drift in an area of projected extreme grade mineralization by the November 2012 Valley of the Kings Mineral Resource estimate.

Cleopatra intersects the 6258015N drill drift at the 426630E cross-section and trends to the south-west where it intersects the 426615E cross-cut and then trends south along section 426615E. After the discovery of Cleopatra, additional drilling was completed, along with the excavation of a drift and raises on the vein.

The Cleopatra vein has been defined for 85 meters along strike, 50 meters above and 50 meters below the 1345 level and remains open in all directions.

More than 22,000 meters of underground exploration drilling and 5,771 meters of surface exploration drilling were undertaken in the Valley of the Kings in addition to the program drilling. To Oct. 30, a total of 61 intersections grading over 1,000 g/t gold have been intersected in the Valley of the Kings projected mineralized domains, for a rate of one every 550 meters of drilling in 2013. Recent underground exploration drilling is in an area of limited, wide-space surface drilling and demonstrates the continued potential to outline high-grade mineralization in the Valley of the Kings, particularly along the projection of Domain 20 to the east.

Assay results will continue to be reported as they are received for underground and surface exploration drilling in the Valley of the Kings, which is expected to conclude in early November.

Pretium said it anticipates updating its mineral resource estimate for the Valley of the Kings based on the 16,789 meters of underground program drilling, additional underground and surface exploration drilling, knowledge gained from accessing the Valley of the Kings underground and mill results from processing the bulk sample material. The updated mineral resource estimate for the Valley of the Kings, which will include a local model of the bulk sample area, is expected by year's end.


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