We recently ran into Explorers League honoree Rob
We recently ran into Explorers’ League honoree Robert Quartermain in Vancouver, so we sat down with him for an update on the world-class Brucejack gold mine, currently under construction in northern British Columbia. Louis James: Bob, why don’t you take us back to the beginning of Pretium’s Valley of the Kings discovery on the Brucejack property and bring us up to date on how the project is going today. Robert Quartermain: Sure. The story goes back to 1993, when Rick Rule financed Silver Standard. We did a $2 million financing, issuing 3 million shares at C$0.78. Our mandate was to go look for silver. In about 1999, Rick suggested that we look at Newhawk. “They’ve got 26 million ounces of silver there, oh, and there’s a little bit of gold in the west zone. Maybe you should think about buying it.” So Silver Standard merged with Newhawk. It was a $5 million transaction. They had $2 million in cash and what was then the Brucejack and Snowfield Projects. In 2006, when the price of gold started to go up, we looked at the old data. There was a drill hole up at Snowfield. It was about 500 feet of about 3 grams of gold. I thought – that’s interesting. So I took our head geologist and we flew up in a helicopter. We saw all the incredible alteration. L: I’ve made that flight and posted pictures for our readers. It is indeed incredible. You can see that something big happened to the rock there. I should also note for those new to the story that Snowfield and Brucejack are adjacent. Bob: Yes. There are kilometers and kilometers of this red laminated alteration. That told me there’d been a lot of fluids moving through the earth there. So we landed at Snowfield and we started to walk. Because Snowfield is part of a large copper-gold system, it has a little bit of molybdenum at the top. I noticed the moly and it reminded me very much of the rocks at the Hemlo Camp. I’d worked at the David Bell mine there. Drilled it all back in 1982 and ’83. The rocks at Snowfield and Brucejack are much younger – only 200 million years old versus the 2 billion at Hemlo – but the association looked good. So we started drilling that in 2006. We put a lot of holes in through ’07 and ’08 and we outlined a large bulk tonnage resource. It was approximately 2 billion tonnes at a half-gram of gold for 34 million ounces. On our way up to Snowfield, we had, of course, flown over the old West Zone. There, you see this nice quartz-veined surface. The rest of the property has kilometers and kilometers of alteration. And I said, “Why don’t we go drill that off?” So we started drilling it at 200-meter centers because it’s a large area. Well, hole number 12 in that program hit a high-grade interval of 16 kilograms of gold, within the low grade. L: That’s not just high-grade – it’s almost off-the-charts bonanza-grade. Bob: Yes, but at the time, we thought it was a geological curiosity. Then, in 2010, we went back to do more drilling on it and found a few more higher-grade hits. I was thinking that with that kind of high-grade material, Mother Nature doesn’t often put it there by itself. I thought we should keep the Brucejack Project in Silver Standard and maybe change our name from Silver Standard into a gold or precious metals company. The board of directors and I had a difference of opinion. As you know, I retired. In August of that summer, the board decided to go and sell the Brucejack and Snowfield projects. They wanted about $500 million. They couldn’t find any buyers because most people thought it was too low grade. By that time, they had outlined about 10 million ounces at Brucejack but, again, at a gram. L: A gram is fine for a heap-leachable gold deposit with good recoveries, infrastructure, and so on. But Snowfield and Brucejack are pretty far off the beaten track in northern British Columbia. You need high margins to make a project work there. Bob: That’s why they couldn’t find any buyers. So I went and asked the geologist working at Silver Standard what the multi-kilo material looked like. He said, “Very high-grade seams of gold.” I looked at this piece of drill core, from hole number 84, that ran about 5 kilograms of gold. I said, “Well that’s not like a nugget of gold. That’s a seam of gold. If there are 5 kilograms sitting in this rock, the rest of it is still sitting underground somewhere. That’s probably a mine.” So I decided to put together a group and make an offer. L: Based on six scattered ultra-high-grade hits, you raised over $400 million to buy Brucejack and Snowfield. Bob: Yes, it was only half a dozen drill holes, but each of the holes had these seams of high-grade gold. It struck me: We have all of this low-grade material and a few of these high-grade hits – they may not line up so that you can mine them alone, but they’re going to carry the rock well enough that we could build a mine that would take it all together at what would be a very high-average grade. I knew this could be done because I worked at the Lamaque Gold Mine for Teck in Val-d’Or as an underground mine geologist. It’s a 6-gram, high-grade, nuggety mine. There are seams of gold that made it work. That was the turning point for me. I knew there was an opportunity to find a high-grade project. I put $7 million of my own hard-earned money into it. This was most of my net worth at the time. I liked the commodity, but more importantly, if I was right about the high-grade thesis, I’d create lots of money, not only for myself, but also for shareholders. L: I love stories about unlocking value simply by looking at things differently. That’s what you did when you saw a potential high-grade mine where others saw low-grade dirt. And you were right. You now have not only a super-high-grade deposit, but a monster-size deposit – the rarest of combinations. You’ve raised the money and are now building the Brucejack gold mine. Talk to us a little bit about that. How close are we? Bob: I should point out that the discovery was basically in 2011 – five years ago. Due to our consistent high-grade hits, we now have 9 million ounces of gold in our resource model at an average grade of 17 grams per tonne. That’s 17 times higher than the average grade of the gold mines currently in the world. That’s what makes this mine unique, and why, as you pointed out, we were able to finance it. Last year, we raised almost $550 million between a debt financing facility and a stream we put in place. We raised another $140 million earlier this year and are now fully funded. We started construction on the project last September. We have about an 18-month construction window. There are almost 900 people currently working at the site today. We’re getting the transmission line in place. We’re enclosing the mill building. We’ve nearly completed our permanent camp and are continuing the underground development. We hope that a year from now, we’ll be able to show our shareholders that were producing gold. We plan to start commissioning the mill in the second half of next year. Now, because of its high-grade nature, the all-in sustaining cost projected in our 2014 feasibility study is less than $500 an ounce. We expect to produce about 500,000 ounces of gold per year in the first years, 400,000 on average over the life of the mine. We plan to generate – at a current gold price of $1,300 to $1,400 per ounce – some $300 to $400 million of free cash flow every year. When you consider our fairly low share count, 178 million shares outstanding, that’s a couple dollars per share of free cash flow. That means we should be able to pay back the capital costs for the mine quickly. More important is that down the road, our shareholders should be able to join us in the wealth that’s going to be produced from this high-grade opportunity. L: Dividend potential. Excellent. Happy to hear that. But, Bob, you’re an explorer. You haven’t stopped looking for more zones like Brucejack’s Valley of the Kings discovery, right? Bob: That is correct. In 2015, we drilled an area to the east called Flow Dome. It’s a recognizable, high-topographical area on the project. We had always kind of wondered what may exist below there. The current Valley of the Kings resource trends in an east-to-west direction, towards Flow Dome. So we stepped out about a kilometer and put a couple of holes in – Holes 657 and 666, if people want to look them up on our website. Both of those holes hit high-grade mineralization. Important for me was hole 666. We drilled that to 1.2 kilometers in depth where we hit half a meter of 8.6 kilograms of gold per tonne. That’s something like 240 ounces of gold per ton. L: That’s $300,000 rock. Bob: Yes. At the beginning of this interview, we talked about those first half a dozen high-grade holes. Now, we’re building a mine there and we’ve stepped out and drilled another half a dozen holes. Every one of them has hit high-grade gold, including multi-kilo intervals. This tells me that we could substantially increase the 9 million ounces we’ve outlined now if there’s a similar zone at Flow Dome. That could result in a very long-life mine. It means taking that cash we talked about generating and using it to grow organically. L: And the current Valley of the Kings zone is still open at depth, right? Bob: The Valley of the Kings is open to depth, open along strike, open in all directions. But we’ve also shown that there’s similar high-grade material almost a kilometer away on strike and 1.2 kilometers down plunge to the Valley of the Kings. So how deep does it go? We don’t know. L: And just to be clear here, there are no blanks between? Flow Dome could actually connect to the Valley of the Kings? Bob: There are no blanks. L: It’s hard to believe that high-grade veins like this, which are usually narrow and discontinuous, could extend that far. Even if they’re there, you expect to hit blanks because they “pinch and swell.” So I tell myself not to expect these dots to connect … but it’s actually possible that they do? Bob: Every drill hole there hit gold. Whether the zones connect or not, this shows how huge this system is. It goes back to when the discovery process began, when we walked over Snowfield and Brucejack. The area hosts a large porphyry copper-gold system. The gold mineralization is so widespread on both properties, it goes on and on… It’s a huge system. Everywhere we drill, we get low-grade gold. L: Not to mention Seabridge Gold’s KSM gold mega-project next door. Bob: If we include the neighbors next door, we’re looking at 5 to 6 billion tons grading a gram of gold. We’re talking 120 to 150 million ounces of gold. With all those mineralizing solutions moving through that gold when it was deposited 180 million years ago, it’s no surprise that some of it got concentrated. We’re fortunate to have found that in the Valley of the Kings. L: Once you get into production – and let’s assume that everything goes as planned – you’ll be gushing cash. If a larger company doesn’t buy Pretium, what then? Anything that would be high-grade in another camp would likely be dilutive to your story. Bob: You’re astute in hitting that if we do any mergers or do anything else outside of Brucejack, it will probably dilute the quality of this asset. But what’s wrong with continuing to explore nearby? Eskay Creek − one of Canada’s highest-grade gold mines – is 15 kilometers north of us. We have the same kind of rocks. We’re actually drilling now, looking for more Eskay Creek-style mineralization. But as we pointed out, we have lots of potential at depth where we’re already mining. To have a long-term annuity coming from a gold project, is that a bad thing? Rather than go and dilute it with lower-grade assets, why not continue to do as we have? Our plan is to continue to mine this project. Generate free cash flow. Do on-site exploration, cover our sustaining capital, and dividend the rest back to shareholders. L: Sounds good to us. We’re exploration fans. We want to see you doing what you’re so famous for doing, and more power to you. Bob: It’s a fact that we have 110 square kilometers that we can explore on our project. There are lots of untouched areas of this anomalous red, rusty rock still waiting to be explored. It’s like any major mining camp in North America, whether it’s the Carlin Trend or Timmins. These have 150 to 200 million ounces of gold. We have the same all within 6 to 8 kilometers. It’s a very tight area. L: That’s an amazing point. You have the equivalent of the entire Abitibi between you and your neighbors. Bob: Correct. What lies under the mountains that we see up from the Valley of the Kings and the Brucejack area? That’s what we want to focus on. Take the money from this and continue to deliver value for shareholders as we have but high-grade value for shareholders. L: Excellent. Well, thank you very much for the update. We look forward to seeing you pour gold next year. Bob:You’re very welcome – and we do, too. And we expect all our shareholders to have cause for celebration then and going forward.