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Edited Transcript of PVG.TO earnings conference call or presentation 31-Oct-19 3:00pm GMT

Q3 2019 Pretium Resources Inc Earnings Call

VANCOUVER Nov 8, 2019 (Thomson StreetEvents) -- Edited Transcript of Pretium Resources Inc earnings conference call or presentation Thursday, October 31, 2019 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Joseph J. Ovsenek

Pretium Resources Inc. - CEO, President & Director

* Tom S. Q. Yip

Pretium Resources Inc. - Executive VP & CFO

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Conference Call Participants

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* Anita Soni

CIBC Capital Markets, Research Division - Analyst

* Heiko Felix Ihle

H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research and Senior Metals & Mining Analyst

* J Steven Emerson

Emerson Investment Group - Founder

* Joseph George Reagor

Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst

* Justin Chan

Numis Securities Limited, Research Division - Analyst

* Kevin Mackenzie

Canaccord Genuity Corp., Research Division - Analyst

* Mark Mihaljevic

RBC Capital Markets, Research Division - Analyst

* Ovais Habib

Scotiabank Global Banking and Markets, Research Division - Research Analyst, Mining

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Presentation

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Operator [1]

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Thank you all for joining us this morning. Welcome to the Pretium Resources Third Quarter 2019 Conference Call. (Operator Instructions) And the conference is being recorded. (Operator Instructions) The conference call today is being webcast live and available along with the presentation slides on Pretium's website at pretivm.com.

I will now turn the call over to Mr. Joseph Ovsenek, Pretium's President and CEO. Please go ahead, sir.

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Joseph J. Ovsenek, Pretium Resources Inc. - CEO, President & Director [2]

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Good morning, everyone. Welcome to our third quarter 2019 operating and financial results call. Participating on the call with me today is our CFO, Tom Yip.

First and foremost, I again want to thank everyone at Brucejack, Smithers and here in Vancouver for their hard work that contributed to another profitable quarter.

On today's call, I will comment on our production ramp-up and its impact on near-term gold production. I will then turn the call over to Tom to comment on our third quarter 2019 financial performance.

I will follow up with comments on longitudinal longhole stoping, reserve definition and expansion drilling and exploration efforts so far this year, both grassroots and drilling at depth below the Brucejack Mine. I will close off with a look ahead to the remainder of 2019, and then open up the call for your comments.

Before we begin, note that our statements contain forward-looking information and future-oriented financial information based on certain assumptions. I refer you to the cautionary language included in our news release issued yesterday as well as the management discussion and analysis for the same periods. These are available on our website and have been filed on SEDAR. Please note, all dollar amounts mentioned on this call are in U.S. dollars, unless otherwise noted.

In the third quarter, the Brucejack Mine produced 88,227 ounces of gold, and we sold 90,713 ounces at an all-in sustaining cost of $878 per ounce of gold sold. We generated $132.7 million in revenue in the quarter, resulting in $34 million in adjusted earnings, equivalent to $0.18 per share.

Operations generated a record $77.8 million in cash this quarter, our ninth consecutive quarter of profit and positive adjusted earnings. Discontinued cash generation allowed us to reduce our debt by $143 million in just 9 months. This includes $62 million we paid as a first installment on the repurchase of the offtake agreement.

As planned at the outset of 2019, the production ramp-up is expected to supply the mill at 3,800 tonnes per day on a consistent basis by year-end, with steady-state production expected in 2020.

Steady-state gold production at Brucejack requires the development of stope inventory; stopes that are drilled off and available for mining, not counting those that are being mined. As we do not have a stockpile, availability of stopes representing a great -- range of grades allows us to blend multiple stopes for consistent production and provides alternative stopes for mining if circumstances require.

In the third quarter, mining focused on increasing the grade of the ore sent to the mill. Stope dimensions were refined in an effort to limit in-stope dilution and reduce the amount of lower grade tonnes processed. However, these efforts to optimize grade within the constraints of a limited stope inventory resulted in a reduction of the overall tonnes available for mining near the end of the third quarter. Bottom line, we underestimated the time required to develop sufficient stopes to support the ramp-up to steady-state production.

In addition, as mining progressed through mid-September, operational issues with 2 stopes prevented expected higher grade tonnes of ore from being mined as planned. There was a hang-up of a blast of a production stope and complications sequencing another stope. So we had to pull more tonnes from the lower-grade stopes that were online to make up for this tonnage shortfall. The combination of limited-stope inventory and these operational issues resulted in lower-than-planned tonnes, grade and ounces in September impacting tonnes, grade and ounces for the full quarter.

Due to limited stope inventory, production mining in the fourth quarter is focused on maximizing tonnes to the mill. All stopes above cutoff rate of approximately 5 grams per tonne gold will be mined and processed as they become available.

Underground development is planned to continue to progress at approximately 1,000 meters per month through year-end, with the focus on further opening the mine to improve access for stope development.

Gold production in the first 9 months of the year was 258,168 ounces. Due to limited stope availability, gold production in the fourth quarter is expected to be in line with third quarter production. Accordingly, we have adjusted our full year 2019 production guidance to range between 340,000 ounces and 350,000 ounces of gold, an approximate 15% decrease from the midpoint of our prior guidance range of 390,000 to 420,000 ounces of gold.

All-in sustaining costs in the first 9 months of the year was $896 per ounce of gold sold. Our total expenditures on mining, milling, G&A and sustaining capital are trending below total all-in sustaining cost guidance. However, as a result of the lower gold production, annual all-in sustaining cost guidance per ounce sold has also been adjusted. It now ranges from $900 to $950 per ounce of gold sold. All-in sustaining cost guidance for the year includes approximately $25 million for sustaining capital, of which approximately $19.6 million has been spent to date.

This slide, Slide 9, is the section view of the Valley of the Kings looking to the north. The gray area contains our measured and indicated resources, the blue lines represent our underground development as the end of the last year and that green box outlines the current mining horizons where we've been mining over these last 2 years.

Turning to the next slide, Slide 10. The additional development completed in the first 9 months of the year is highlighted in orange. We have prioritized opening up the mine this year. And as you can see, we've made significant progress. We've been opening up our mining horizons to the east and west, pushing our ramp down to open a lower mining horizon and pushing our ramp-up to open an upper mining horizon. There has also been extensive development expanding to the north and south, which is not shown here. Through the rest of the year, our priority remains on opening up the mines, to improve our access to reserves, to provide us with optionality to better manage mining at Brucejack.

Turning now to Slide 11. This is our mill flow sheet. All critical modifications and upgrades required to sustain processing at the increased production rate of 3,800 tonnes per day are completed. Earlier this year, a much more efficient concentrate bulk loading system was installed to replace the concentrate bagging system. Concentrate filter press upgrade is now complete, as are all process-related pump upgrades. Modifications to the floatation circuit and flocculent systems continue and will be completed during regularly scheduled shutdowns as the final components are delivered.

Despite the production challenges in the third quarter that affected our annual guidance, I would like to point out that we extended our track record of positive adjusted earnings and cash flows again this quarter, as we have every quarter since achieving commercial production on July 1, 2017.

Now I'll turn the call over to Tom to review our financial performance for the third quarter of 2019.

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Tom S. Q. Yip, Pretium Resources Inc. - Executive VP & CFO [3]

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Thank you, Joe, and good morning, everybody. There are 2 key takeaways this quarter. Our third quarter financial results were significantly better than the second quarter, primarily due to 13% or $167 per ounce increase in the gold price, and we sold over 90,000 ounces of gold, approximately 4,700 more ounces than the second quarter. We have strong financial leverage to increases in the gold price.

Our earnings from mine operations of over $46 million, increased 56%; and our operating cash flow of over $77 million, increased 89% over the second quarter of this year. And during the quarter, we also repurchased 100% of the offtake obligation, which was the last piece of the original 2015 construction financing package. And we made a payment of $62 million, our first installment, at the end of September.

Turning to Slide 15, during the quarter, we sold 90,713 ounces of gold at an average realized price of $1,486 per ounce versus 85,953 ounces of gold at an average realized price of $1,319 per ounce for the second quarter.

We generated over $132 million in revenues compared to $113 million in the prior quarter of 2019. Our cost per tonne milled was $181 in the third quarter and now is $178 per tonne over the first 9 months of this year. This is in line with our spending guidance and reflects higher drilling and the increased stope development activity that has occurred throughout the year.

Turning to Slide 17. Our cost of sales, which includes production cash costs, depreciation and depletion, royalties and selling costs, averaged $950 per ounce sold for the third quarter versus $970 for the second quarter. Depreciation and depletion expense has increased in the last 2 quarters, by approximately $40 per ounce sold as the result of the updated reserves we reported in April. Total cash cost per ounce sold averaged $640 for the third quarter versus $702 for the second quarter of 2019.

Earnings from mining operations were $46.6 million for the third quarter versus $29.8 million for the prior quarter this year. Deducting our corporate G&A costs, we generated operating earnings for the quarter of $41.3 million. There are 2 significant nonoperating items on our P&L. The first is interest expense of $8 million for the third quarter versus $8.8 million for the second quarter. Our effective interest rate decreased in 2019 to 5.5% as a result of refinancing we completed at the end of 2018, replacing the project construction debt with syndicated bank debt.

The second item is the loss on financial instruments at fair value. This reflects the final adjustment required for the repurchase of the offtake obligation. This adjustment was a loss of $4.4 million versus $3.5 million for the second quarter. This mark-to-market adjustment has been significant since September of 2015 causing quarterly volatility. With the repurchase of the offtake obligation, we will no longer have this impact going forward.

Third quarter tax was consisted of $1.4 million for cash taxes for the BC Mineral Tax and $21.9 million for deferred taxes. The deferred tax included $8.1 million for the repurchase of the offtake obligation and another $2.5 million for the reevaluation of Canadian-denominated BC Mineral Tax pools. Of note, we currently pay BC Mineral Taxes at a minimum rate of 2%, not 13%, as we draw down our significant tax pools over the next several years. As well, based on the updated Life of Mine and current gold prices, we do not anticipate any cash taxes for federal and provincial income taxes until 2023.

Net earnings were $6.3 million or $0.03 per share for the third quarter versus $10.4 million or $0.06 per share for the second quarter. We adjust our earnings for items we do not reflect -- we believe do not reflect the underlying operations of the company. These are noncash items consisting of primarily the loss of financial instruments of fair value and deferred income taxes. Adjusted earnings were $34 million or $0.18 per share for the third quarter versus $17 million or $0.09 a share for the second quarter.

Turning to Slide 20. For the third quarter, we generated $77.8 million of cash flow from operations versus $41.2 million for the second quarter and totaled $158.9 million for the first 9 months of 2019. The increase in the average gold price accounts for the majority of the increase over the first half of the year. And as Joe has mentioned, this extends our record of positive cash flow for all 9 quarters since startup in mid-2017.

With the strong operating cash flow during the third quarter, we paid $16.7 million on the debt facility, $62.4 million installment to repurchase the offtake obligation, $7 million on interest and spent a total of $14.6 million on CapEx. We ended the quarter with $16.6 million in cash. The offtake obligation was part of the 2015 construction financing. And with the repurchase agreement, we will make the final installment of $20 million in November.

Our syndicated bank debt totaled $480 million at the beginning of the year. At September 30, the balance totaled $398.7 million. This consists of a term facility with $216.7 million outstanding, representing another 13 quarterly installments and a balance of $182 million on the $200 million revolver. The facility matures in December of 2022. In 9 months this year, we have repaid $81 million on our syndicated facility and $62 million on the repurchase of the offtake obligation. Total debt reduction is $143 million.

Turning to Slide 23. Our AISC spending for 9 months totaled $231 million and with 258,100 ounces of gold sold, the average cash cost was $675 per ounce. And the all-in sustaining cost was $896 per ounce of gold sold. We expect spending for the fourth quarter to result in total annual spending on the low end of our previous guidance. We now are forecasting spending for the year of between $314 million to $323 million.

The production guidance for the year has been revised to between 340,000 to 350,000 ounces of gold, resulting in an all-in sustaining cost ranging between $900 to $950 per ounce of gold sold.

So to sum up, in the third quarter of 2019, our financial results were very robust despite lower-than-planned gold production and shows a significant leverage to gold price. An increase of $167 per ounce in the gold price led to quarterly increases in cash flow and operating earnings of $37 million and $17 million, respectively. With additional cash generation during the first 9 months of the year, we repaid a total of $143 million and achieved our debt reduction goal set out at the beginning of the year. For the remainder of 2019, we will continue to generate significant cash to fund our schedule debt repayments.

Now back to you, Joe.

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Joseph J. Ovsenek, Pretium Resources Inc. - CEO, President & Director [4]

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Thanks, Tom. Turning to Slide 25. We completed testing of longitudinal longhole stoping as a mining method at the Valley of the Kings. Based on our understanding of the geology and controls on gold mineralization, longitudinal longhole stoping mining along the direction of mineralization rather than perpendicular to it was tested as a more effective method of mining. With the test stoping completed, the decision has been made to implement longitudinal longhole stoping as the mining method in areas of the mine where corridors of high-grade gold mineralization are defined.

In making the decision to adopt longitudinal longhole stoping to mine the corridors of high-grade gold mineralization at the Valley of the Kings, we numbered -- we assessed a number of things, including our ability to drift along the high-grade corridors, test stope grade profiles from our long-haul drilling to gauge internal dilution, geotechnical considerations to ensure the safety of our people and our ability to mine along the corridors with our existing mining fleet. We expect this transition and mining method to reduce the amount of in-stope waste of dilution and help us manage grade variability. We also expect to reduce development costs as we will be developing an ore as opposed to waste.

As a result of incorporating the longitudinal longhole stoping in certain areas of the mine, we will release an updated Life of Mine Plan along with an updated resource and reserve estimate in the first quarter of next year.

Extensive resource definition and expansion drilling commenced early in 2019, with the objective to improve reserve depth ignition ahead of mining and to expand the current mineral reserve at the Valley of the Kings, adding gold ounces to the Life of Mine.

Turning to Slide 27. This is a section view of the Valley of the Kings looking to the north. The dark blue lines represent the current underground development. The green dashed line represents the current mining horizons. The gray area in the background represents the existing measured and indicated resource. The 2 shaded areas represent a rough outline of infill drilling at the Valley of the Kings. The purple shaded area, the first phase of the drill program, which focused on resource definition at depth below the 1,200-meter level is now complete. The second phase of the drill program in beige, which focused on reserves definition westward towards the Brucejack Fault is now over 95% complete. A total of 89,380 meters of drilling from 1,483 holes has been completed to date in these first 2 phases. An updated resource estimate is currently underway based on the results from these first 2 phases of the drill program, with an updated reserve estimate to get underway shortly.

An updated Life of Mine Plan incorporating longitudinal longhole stoping will be completed following the completion of the updated reserve estimate. We plan to release the updated resource and reserve estimates and updated Life of Mine Plan in the first quarter of 2020.

Opportunities for expansion are located at depth to the west, to the east and to the northeast of the currently defined mineral reserve, where previous drilled programs have indicated the continuation of high-grade gold mineralization. The third and fourth phases of the drill program, illustrated in green and orange, targeting resource expansion at depth and to the east of the current mineral reserve, are set to begin shortly and will continue into next year.

Stepping back now. On Slide 30, this is a wider section view of the Brucejack property looking to the north, with the Valley of the Kings in the top left corner. In the center of the slide, 1,000 meters to the east of the Valley of the Kings, exploration drilling in 2015 intersected high-grade gold below the Flow Dome Zone. Mineralization below the Flow Dome Zone is the same mineralization we see at the Valley of the Kings. You will also see a number of drill holes in the slide emanating beyond the Valley of the Kings. Each one of these drill holes has encountered Valley of the Kings-style mineralization outside the existing resource envelope. There are 2 main takeaways from this slide. First, reserve potential of the Valley of the Kings is significant. We expect to be mining in the Valley of the Kings much longer than our current 14-year mine life.

For the second key take away, take a look at the drill holes going down for significant depth. We have a substantial amount of high-grade goals in the Valley of the Kings, and we've intersected high-grade gold in the Flow Dome Zone. We believe there is a significant gold, copper, porphyry at depth, sitting below the Brucejack Mine, which we are systematically targeting.

Our sixth hole targeting the source porphyry is underway. If we're successful and intersect the high-grade gold, copper, porphyry, we expect to create significant value for our shareholders. Stepping further out, we have over 12,000 square kilometers of mineral claims in the Golden Triangle in British Columbia.

On Slide 31, the Brucejack Mine is on the top left corner of the property. The 2019 grassroots exploration program on the Bowser Claim surrounding the Brucejack Mine is now complete. In total, 19,942 meters of drilling was completed with 4 drill rigs. The drill program focused on further evaluating several distinct areas that have the potential to host Eskay Creek style VMS deposits and Brucejack style high-grade epithermal gold systems.

At the A6 Zone, approximately 14 kilometers northeast of Brucejack Mine, drilling is testing an area in the Iskut River Formation that holds the same stratigraphy as the Eskay Creek Mine. Of assays received to date for the A6 Zone, drilling intersected high-grade silver plus copper mineralization within the overlying mudstones. We encountered 2,890 grams per tonne silver and 1.81% copper over 1.5 meters, 187.5 meters downhole. Additional drilling and downhole geophysics were undertaken to locate the core of the system and the associated polymetallic mineralization. We will be following up on A6 in the spring. We believe the best value for our shareholders, along with paying down debt, is to invest a portion of our cash flow in exploration of our existing claim package.

Let me conclude with a summary and a look ahead at the remainder of 2019. We remain on track to achieve a sustainable production rate of 3,800 tonnes per day by end of this year, with steady-state production in 2020. Though gold production did not meet our expectation this quarter, we posted a solid financial performance in Q3. We expect another quarter of robust cash flow in Q4. And with the repurchase of the offtake agreement, we remain on track to repay $180 million of debt in 2019 surpassing our initial target of $140 million.

We are drilling to expand our reserves with excellent potential to extend our mine life. We are continuing to systematically explore the porphyry potential at depth below the Brucejack Mine. Our regional grassroots exploration is still in early phase, but we believe the greatest return would be in discovering another mine on our existing claims. Finally, in the first quarter of next year, we will have an updated resource and reserve and a new Life of Mine Plan, which will include the results of 90,000 meters of infill drilling and longitudinal longhole stoping. Thank you.

That concludes the formal presentation. I will now turn the call over to the operator, who'll open the lines for your questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question comes from Justin Chan of Numis Securities.

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Justin Chan, Numis Securities Limited, Research Division - Analyst [2]

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Just my first question is on stope inventory. I understand the current focus is on level development, but could you give us a sense of when that starts to transition to stope development? And does the transitional longitudinal change that at all in terms of your flexibility of stopes sequence? Do you need to get more development ahead of -- or upfront? And then I guess, overall, what I'm driving towards is, when do you think your stope-inventory will give you more flexibility probably to be you a bit more selective about what goes through the plant?

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Joseph J. Ovsenek, Pretium Resources Inc. - CEO, President & Director [3]

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Justin, well, first off, on stopes, we're currently mining from 6 stopes. We're comfortable with 6 stopes in operating that we can service the mill at 3,800 tonnes per day on a comfortable basis. In order to have sufficient inventory, we still feel this is same as last year, 6 to 8 stopes in inventory of various grades will allow us to keep the mine running and production going at a consistent basis.

Looking ahead, I can't give you the timing on that right now, since we're updating our Life of Mine Plan with longitudinal longhole stoping, which we expect will reduce the amount of development meters required because we're developing an ore. So when we get that plan out, it will be in the first quarter of the year. It's tracking well. We will come up a -- we will show you in our results the plan to get up to that inventory level and with timing at that point in time.

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Justin Chan, Numis Securities Limited, Research Division - Analyst [4]

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Okay. And just a follow-up on that. With the transition to longitudinal, does that -- it reduces overall development meters, but do you need more access upfront? I mean overall, the meters go down, but do you need more access to ensure you have the stope sequence in place? Or is that not the case?

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Joseph J. Ovsenek, Pretium Resources Inc. - CEO, President & Director [5]

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No. We're good with access. It's not going to be any different for us in transverse because we're not stubbing in all the stopes. We're just drifting along the high-grade corridors then longholing them and then setting up our stopes along those corridors. So we don't need to stub in for each individual transverse stope. So it shouldn't impact us there.

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Justin Chan, Numis Securities Limited, Research Division - Analyst [6]

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Okay. Great. Just one more on the mining and then a couple on costs. I recall you had a small -- yes, I remember you had a small amount of material this year planned for closer to the Brucejack Fault, so higher grade material. Is that still the plan for the year? Has that been mined already? Can you just give us an update on where that is? And did the grades come in as you expected?

And then just on costs. I recall that Tom was saying that you expected higher unit costs in the second half. That hasn't really happened. Was that just conservatism? Or is there anything left to come? Or have any cost been deferred? Can you just give us an update on that?

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Joseph J. Ovsenek, Pretium Resources Inc. - CEO, President & Director [7]

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Okay. Let me jump in on the Brucejack Fault question. So we have not opened up yet at the Brucejack Fault. We've increased our drill density out there. We now have drilling at 15-meter centers for most of the -- if not all of the indicated resource, out towards the Brucejack Fault. We are currently developing over there, but we have not started mining yet. We'll be getting into that in 2020 and we'll show you that in our updated Life of Mine Plan coming out in Q1. Tom?

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Tom S. Q. Yip, Pretium Resources Inc. - Executive VP & CFO [8]

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Justin, thanks for the question. You know that the third quarter cost per unit has been trending up slightly from our prior quarters. We came in at about $181 per tonne in the third quarter and we're averaging $178. So you'll see that there's a slight increase in the third quarter. And in the fourth quarter, we'll see maybe a little bit higher and that's because of just winter months, right? We have a little offset on that in terms of just sort of per-unit basis because we'll be pushing through a little higher volume as we ramp up to the 3,800 tonne a day level in the fourth quarter.

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Justin Chan, Numis Securities Limited, Research Division - Analyst [9]

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Okay. And just one last one from me. On the offtake that -- on the offtake, can you -- Tom, perhaps could you give us any sense of, is there any -- I guess, what impacts on realized gold prices should we expect it to have?

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Tom S. Q. Yip, Pretium Resources Inc. - Executive VP & CFO [10]

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Yes. So the way we account for that, Justin, is that that's really treated as a financing vehicle. So the differential between the realized price is really a reduction in the offtake obligation, where you really see the impact is on our cash. And that without the offtake, we'll see increase in our realized or the actual cash that we get in from each and every sale.

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Justin Chan, Numis Securities Limited, Research Division - Analyst [11]

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Okay. And is there, I guess, a margin that we can put through our numbers? Or any guidance on how to treat that?

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Joseph J. Ovsenek, Pretium Resources Inc. - CEO, President & Director [12]

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Yes. It depends on gold volatility. When gold's performing with fairly limited volatility, it's about 1% of the gold price. During volatile times, that pricing window would skew things higher.

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Tom S. Q. Yip, Pretium Resources Inc. - Executive VP & CFO [13]

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Yes. So for example, in the third quarter, we charged $1.3 million to the obligation. And if you work that out, it roughly amounts about $20 per ounce impact just because of the volatility in that quarter.

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Operator [14]

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The next question comes from Anita Soni of CIBC.

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Anita Soni, CIBC Capital Markets, Research Division - Analyst [15]

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So my questions are with regards to cost. So when we look at the per ounce sold you're -- year-to-date, you're at $896. You're guiding to $900 to $950. And I'm just trying to understand what -- if you look at the total cash cost, you basically have about $70 million to spend versus your sort of $58 million, $60 million run rate in the prior quarter. I'm just trying to understand why the costs are going up so much in the fourth quarter?

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Tom S. Q. Yip, Pretium Resources Inc. - Executive VP & CFO [16]

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So basically, in the fourth quarter, we're running a little more tonnes ramping up to 3,800 tonne a day. So in the whole-dollar basis, you'll see a little ramp up there. So there is probably about $6 million or $7 million of increase just for the additional tonnage and the rest of it is really sustaining capital and the other items that we have below the cash cost item.

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Anita Soni, CIBC Capital Markets, Research Division - Analyst [17]

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All right. And then secondly, just this quarter, you delivered, I think, it was $21 on the processing per tonne. And given that you had some processing challenges this quarter, I'm wondering why that number went down by $10 per tonne unit cost?

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Tom S. Q. Yip, Pretium Resources Inc. - Executive VP & CFO [18]

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Sorry, Anita. I...

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Anita Soni, CIBC Capital Markets, Research Division - Analyst [19]

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So when you reported your unit costs, the processing is $21 a tonne. And in the prior quarter, I believe, it was somewhere closer to $30 a tonne. And I'm just wondering why exactly that number went down substantially.

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Tom S. Q. Yip, Pretium Resources Inc. - Executive VP & CFO [20]

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It's just higher throughput.

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Anita Soni, CIBC Capital Markets, Research Division - Analyst [21]

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Okay. I think you had higher throughput in the prior quarter, that's where I think the challenge is for me to understand that, but you can get back to me on that one. And just moving on to next year, given that you've had some challenges delivering grade to the mill this year, I think $10.6 million or $10.4 million was the average. That was in the guidance, $10.4 million in the guidance and $10.6 million in the Life of Mine Plan, and it looks like we're going to be running closer to $9 million. How confident are you in that 12-gram per tonne material for next year and 13 in 2021?

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Joseph J. Ovsenek, Pretium Resources Inc. - CEO, President & Director [22]

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Anita, Joe here. Look, we're going to get that Life of Mine Plan out and that will help you with guidance on where we are going forward.

Look, during the quarter, we were running well. In July, September, we were in the double digits on grade. And as I say, our big issue is stope inventory. And the way we manage that, our strategy to manage dilution within our stopes is to have a stope inventory and that allows us to blend stopes multiple grades to hit that grade. So nothing's changed on that front. That is still our strategy and we're still focused on limiting internal dilution. So as we come up with our updated Life of Mine Plan next year, that will help guide you on things and that will also -- will lay out exactly what we're doing to limit internal dilution and what we need for stope inventory going forward.

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Anita Soni, CIBC Capital Markets, Research Division - Analyst [23]

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Okay. But I mean -- this quarter, I mean, I think you were saying that the stope inventory that you have is sufficient to deliver. And yes, it's -- so I'm just wondering, will there be more development required next year? Or I mean, don't you feel that you need some more flexibility going into next year?

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Joseph J. Ovsenek, Pretium Resources Inc. - CEO, President & Director [24]

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No. Look, I think I said, unless I'm mistaken. Look, we didn't have sufficient stope inventory. That -- and our big issue here was we underestimated the time required to ramp up sufficient stope inventory. That's the bottom line. And so we needed more time to get to that stope inventory. So we did not have sufficient stope inventory during the quarter.

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Anita Soni, CIBC Capital Markets, Research Division - Analyst [25]

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Okay. And then last question on the issues this quarter. I think you said you had a couple of hang-ups in stope -- once in stope sequencing and one in specific -- I can't remember what the reason was, but I'm just wondering why that specific grade, like a high-grade stope isn't coming in, in Q4 and why it has to be delayed until 2020?

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Joseph J. Ovsenek, Pretium Resources Inc. - CEO, President & Director [26]

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The stope that we had hang-up with the blast we're still looking at how we can get at that within our thing. So we blasted. Over half of the stope is hung and still there. And so we have to see whether we can get back at it or whether we're going to have to just leave it behind. So we're working at that. Now our engineers are looking at it, and we'll see how we get through, but it doesn't come -- well, you're in mining engineering. You know that it takes a while to get back online and that's the big issue there.

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Anita Soni, CIBC Capital Markets, Research Division - Analyst [27]

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Yes. And if I can ask just one last question, what was the -- in terms of double-digit grade, what was the grade in October. Can you give us that?

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Joseph J. Ovsenek, Pretium Resources Inc. - CEO, President & Director [28]

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No. We're not giving grade going on. On the current quarter, we don't give our grades until the end of the quarter, but we're tracking comfortably with our guidance.

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Operator [29]

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The next question comes from Ovais Habib of Scotiabank.

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Ovais Habib, Scotiabank Global Banking and Markets, Research Division - Research Analyst, Mining [30]

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Just a couple of questions from me. A lot of the questions have been answered. But just in terms of longitudinal mining in terms of the tests which you guys have done and you've talked about longitudinal mining will be implemented in certain areas. Can you give us a sense as to in terms of percentage-wise how much longitudinal mining will be implemented 10%, 15%, 20%, within what you're going to be mining over the Life of Mine?

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Joseph J. Ovsenek, Pretium Resources Inc. - CEO, President & Director [31]

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I don't have that number for you right now. I need to get the Life of Mine Plan to you, Ovais, which will be in the first quarter. But let's just say, where we're opening up the mine below the 1,080 level to the west, towards the Brucejack Fault and up above the 1,410-meter level, those areas have not had the transverse infrastructure put in place yet. So you could see a significant amount of longitudinal longhole stoping in those areas, which -- so I expect it will be well north of that 15% to 20% amount.

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Ovais Habib, Scotiabank Global Banking and Markets, Research Division - Research Analyst, Mining [32]

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Got it. And just moving on to the drilling that you guys have done in the probable reserve area, what kind of spacing was before? And what's after with this infill drilling program?

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Joseph J. Ovsenek, Pretium Resources Inc. - CEO, President & Director [33]

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Okay. Going into the drill program, it's going to be in excess of 20-meter drill spacing, 20-meter to 40-meter on the indicated. And we're bringing that all down into that 15-meter or less spacing. It's the target from the drilling.

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Ovais Habib, Scotiabank Global Banking and Markets, Research Division - Research Analyst, Mining [34]

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I see. And I mean, in terms of the drills, also, just to get an idea as to what to expect for the reserves, I mean, I'm not looking for specifics, but do you have a sense of how the drilling went in terms of was this according to expectations in terms of grades and Wits?

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Joseph J. Ovsenek, Pretium Resources Inc. - CEO, President & Director [35]

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Until we get the resource and reserve update, I can't really tell you anything there. But I can say, what we saw a fair amount of visible gold and we were -- we're hitting gold where we expect to hit gold. How's that?

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Ovais Habib, Scotiabank Global Banking and Markets, Research Division - Research Analyst, Mining [36]

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Okay. Sounds good.

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Operator [37]

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The next question comes from Joseph Reagor of Roth Capital Partners.

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Joseph George Reagor, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [38]

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I guess just kind of following on some of the other questions about the stope inventory. Going forward, how do you solve that problem? Is it just a matter of adding additional shifts? Do you need additional equipment? Is it a just throw more money at it kind of thing? Like how do we get from not enough stope inventory to enough that you can be flexible?

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Joseph J. Ovsenek, Pretium Resources Inc. - CEO, President & Director [39]

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Joe, it's just a question of time. We're developing at a good solid rate, 1,000 meters per month. We just need time to get out ahead. We don't need more equipment. We have sufficient equipment. We have the budget we need. We just need time. We're underground. We can only go in any one direction and roughly 5 meters a day. So it takes us a while to get things opened up. And that's why we're prioritizing opening up the mine so that when we do get it open up we have access to a significant number of areas to mine at any given time. We're not constricted while we're mining and that will allow us to have access to a number of stopes and allow us to blend the way we need to blend ore.

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Joseph George Reagor, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [40]

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Okay. Fair enough. And then on the stope that got hung up on the blast, can you give us a rough idea of -- if you had to leave it behind what that's going to -- where the tonnes and grade are there? Or maybe just the contained ounces you think are still stuck in that stope?

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Joseph J. Ovsenek, Pretium Resources Inc. - CEO, President & Director [41]

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There's a significant number of ounces. I won't get into the specifics. We're still -- we got our LiDAR scope of the stope and everything else, but I can't give you the exact numbers. But it's hung up, and it's not going to impact the Life of Mine Plan. There's a lot of gold. We have a huge mineralized system. It's just looking at it and whether it's worth putting the extra cost into recovering what's left of that stope, that's hung up or is it better just to backfill what's been blasted out and move along. So we're looking at that now and we're going to do it on a cost-benefit basis.

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Joseph George Reagor, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [42]

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Okay. And then, as far as next year goes, based on what you've learned so far this year, is it fair to say that the Life of Mine Plan that you guys provided the 3-year update is under review again for like a new 3-year plan that's going to come out in Q1? Or should we still take -- I think it was roughly 12 grams expected next year, is that still gospel? Or is there some change coming there?

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Joseph J. Ovsenek, Pretium Resources Inc. - CEO, President & Director [43]

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Well, look, it's going to be an updated Life of Mine Plan completely. So this is going to be not just 3 years, it's the Life of Mine going forward from beginning of 2020 onwards. So we will have that plan out. And so it will have tonnes grade, stope inventory, things like that laid out for you all out in Q1.

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Joseph George Reagor, Roth Capital Partners, LLC, Research Division - MD & Senior Research Analyst [44]

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Okay. And then when do you think we'll get guidance then for next year?

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Joseph J. Ovsenek, Pretium Resources Inc. - CEO, President & Director [45]

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We'll have guidance when we have our updated Life of Mine Plan, we'll get it out altogether. So look, we'll push hard to get that out as early in the quarter as we can, but there's a lot of work involved, so we're working on it and we'll get it to you as soon as we can.

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Operator [46]

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The next question comes from Mark Mihaljevic of RBC Capital Markets.

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Mark Mihaljevic, RBC Capital Markets, Research Division - Analyst [47]

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I guess first question, can you just give a breakdown the -- or kind of some of the delta that you've seen on the grades this year between how much of that was just deferral of the high-grade stopes? How much of it was not getting high grade in some of the areas you are expecting and any reconciliation you can provide?

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Joseph J. Ovsenek, Pretium Resources Inc. - CEO, President & Director [48]

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Okay. What I can tell you is we're comfortable with our resource. It's reconciling well. It's really a question of dilution and how best to mine this and limit dilution. And as I have said, the way we do that is through having -- mining multiple stopes at a time since we don't have a grade control program -- sorry, in the stockpile, we have a grade control program. So I can't tell you exactly what grades come from which stopes because at any given time 6, 7 stopes are hit in the crusher and that's all being blended and coming out in the mill. So I can't get into the specifics on that, but I can say overall, we're comfortable with the way our resource is reconciling.

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Mark Mihaljevic, RBC Capital Markets, Research Division - Analyst [49]

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Okay. And then, again, you mentioned higher dilution, can give -- can you put some numbers around kind of where you're running versus where you budgeted and kind of where you hope to get to?

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Joseph J. Ovsenek, Pretium Resources Inc. - CEO, President & Director [50]

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Well, look, our dilution on the periphery of the stopes is in line with our budgets, about a meter around it. Really, it's how we control dilution within stopes. And so limit them, the amount of low-grade tonnes going to the mill. And so I can't really give you a number on that, but what we do is -- and you've been in the site, so we longhole our stopes, we use our grade control program, our longhole drills to give us the estimated grade for rings and that sets up our mining of individual stopes. And by having those significant stope inventory on hand, that's allowed us to keep working with our grade. As we run out of stope inventory, we take away that flexibility that we can use to optimize grade. And so it comes down to we need to control internal dilution and our strategy to do that is to have multiple stopes online and multiple stopes as backup in inventory.

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Mark Mihaljevic, RBC Capital Markets, Research Division - Analyst [51]

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Okay. I guess following up on that, I guess, when we had been to site, there have been quite a bit of -- you spent a bit of time on the updated grade control program. Are you happy with how that's performing, again, excluding the constraints from stope inventory, but has that actually been giving you the intel you're hoping for and allowing you in the absence of stope inventory challenges better plan around that internal dilution? Or you now happy with this program?

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Joseph J. Ovsenek, Pretium Resources Inc. - CEO, President & Director [52]

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Absolutely. The grade control program, and just for everybody's sake, that's the sampling of the longhole drill cuttings. And we now have an RC drill doing the work and getting more on, is working very well. It's reconciling well to the mill. So we're pleased with the way the grade control program is going.

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Mark Mihaljevic, RBC Capital Markets, Research Division - Analyst [53]

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Okay. That's good. I guess just one last one. You mentioned you've gone into double-digit grades in July and September. I don't know if you meant July and August because you mentioned issues in September previously. But can you just give us a sense of kind of how high you've been able to get this? And just, again, give us a sense of in the absence of operational challenges, what you're able to deliver?

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Joseph J. Ovsenek, Pretium Resources Inc. - CEO, President & Director [54]

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Well, if I did say September, apologies. Yes, July and August, we were in double digits. We were in the 10s. We were pretty close to where we wanted to be, pretty much bang on where we wanted to be for those months. And -- so on a monthly basis, that's how we look at our grade because on a daily basis, grades up and down.

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Operator [55]

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The next question comes from Steve Emerson of Emerson Investment Group.

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J Steven Emerson, Emerson Investment Group - Founder [56]

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I'm having trouble getting my hands around the 2 stopes that are damaged. I guess I understand the blast problem basically destroyed the stope and makes it at this point too expensive to recover. And I don't quite understand what happened to the second high-grade stope? And to what extent that may be coming on soon?

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Joseph J. Ovsenek, Pretium Resources Inc. - CEO, President & Director [57]

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Steve. So with the blast hang up, we haven't said it's too expensive to recover yet. We're looking into it. We're going to see what we can do to recover some of that ore. But essentially, when it blasted, it hung. So it's in place. It didn't drop, so we couldn't muck it out. And so we have to make sure, look at it hard, make sure it's safe to go back and drill it and everything else. So that's what we're looking at now and...

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J Steven Emerson, Emerson Investment Group - Founder [58]

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What does it mean when you say it hung?

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Joseph J. Ovsenek, Pretium Resources Inc. - CEO, President & Director [59]

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It didn't fall. So we've blasted it. Usually, you blast a rock, it drops. We then get in, muck it out and so on, right? So we blasted and it didn't drop. So had an issue with the blast and the work we're investigating that still. It's a safety issue. We can't just go in there. On the other stope, that was a sequencing issue. We have processed that stope now in October. That's been through the mill. It's just we couldn't get it into the mill during the third quarter.

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J Steven Emerson, Emerson Investment Group - Founder [60]

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Excellent. So this means you have now a high-grade stope that is in your inventory. What are the stopes you're picking ore from?

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Joseph J. Ovsenek, Pretium Resources Inc. - CEO, President & Director [61]

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We've actually mucked it out, and we're backfilling it shortly. So now we've -- that's come and gone. It's been through the mill. We're working through our -- what we have the stopes.

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J Steven Emerson, Emerson Investment Group - Founder [62]

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And what is your guess as to when you will have other high-grade stopes that you're able to take ore from into your mix?

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Joseph J. Ovsenek, Pretium Resources Inc. - CEO, President & Director [63]

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No guessing. But we always have high-grade stopes and low-grade stopes coming online, and then we blend them. So it's constant. We're looking to open up the mine still and get out to where we have even more higher-grade reserves out to the west, the Brucejack Fault and down below at depth. But we still mine high-grade stopes as we move along through the quarter. It's just the proportion of them.

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Operator [64]

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The next question comes from Heiko Ihle of H.C. Wainwright.

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Heiko Felix Ihle, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research and Senior Metals & Mining Analyst [65]

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And building on Anita's question a little bit, can you just guesstimate the cash costs for July, August, September and also for October. I mean it's the last day of October, so I assume you have some sort of idea. I'm not looking for a scientific answer. I'm just looking for a guesstimate. And if you can't disclose it, should we just extrapolate the midpoint of guidance with the prior midpoint, take out Q1 and Q2, and then that's sort of our answer?

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Joseph J. Ovsenek, Pretium Resources Inc. - CEO, President & Director [66]

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Well, Heiko, we've sort of given you the whole number spending on that AISC chart that we showed in the presentation. So you'll see that we've got the range of $314 million and $323 million. So you can take the midrange as the best estimate at this point in time.

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Heiko Felix Ihle, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research and Senior Metals & Mining Analyst [67]

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Okay. So the extrapolation works, but you're not willing to go into more detail. Is that a fair answer?

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Tom S. Q. Yip, Pretium Resources Inc. - Executive VP & CFO [68]

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Well, Heiko, you know us, we can't give you a guesstimate.

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Heiko Felix Ihle, H.C. Wainwright & Co, LLC, Research Division - MD of Equity Research and Senior Metals & Mining Analyst [69]

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Okay. Fair enough. And then just philosophically, and I mean, understanding that the stock is right now back to where it was in July, has anything changed in regards to your plans for your balance sheet? I mean you paid back a decent chunk of debt, and I think you're doing a great job taking care of your balance sheet. But I mean, just -- is it fair to say that nothing has changed in regards to balance sheet management?

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Joseph J. Ovsenek, Pretium Resources Inc. - CEO, President & Director [70]

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Yes, I'd say that's a good way to sum it up. We're generating a lot of cash flow. We'll continue to generate a lot of cash flow, and we'll continue to pay down the debt.

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Operator [71]

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The next question comes from Kevin Mackenzie of Canaccord Genuity.

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Kevin Mackenzie, Canaccord Genuity Corp., Research Division - Analyst [72]

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A few quick questions here. So as we look to Q4, it sounds like the one -- the high-grade stope, which has been accessed now has been mined. What's impacting the grades now or projected grades in Q4? Does this hung stope? Or is it more of this stope design optimization? Or is it sequencing? What does it look like in Q4?

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Joseph J. Ovsenek, Pretium Resources Inc. - CEO, President & Director [73]

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It's like you say. It's stope design optimization. We need a good stope inventory to be able to start optimizing our grade using our grade control program. We don't have that inventory. And so what we're doing is we're just taking every stope that gets done, that's opened up and drilled off, we start mining it as long as it's above our cutoff.

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Kevin Mackenzie, Canaccord Genuity Corp., Research Division - Analyst [74]

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Okay, great. And then the other question I had was with regards to the longitudinal test hole mining that was done. Any idea what the total tonnes to date have been mined in that program?

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Joseph J. Ovsenek, Pretium Resources Inc. - CEO, President & Director [75]

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It's between 15% to 20% of our tonnage over the course of the first 9 months, somewhere in that range.

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Operator [76]

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This concludes the question and answer session. I would like to turn the conference back over to Mr. Ovsenek for any closing remarks.

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Joseph J. Ovsenek, Pretium Resources Inc. - CEO, President & Director [77]

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Well, thanks, everyone, for dialing in to our call this morning. I appreciate all your comments and questions. Have a good-looking ahead. Have a good weekend. Thanks, everyone. Bye-bye.

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Operator [78]

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This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.