Pretium Resources inc (PVG) Q2 2021 Earnings Call Transcript

Pretium Resources inc (NYSE:PVG)
Q2 2021 Earnings Call
Aug 13, 2021, 10:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Thank you all for joining us this morning. Welcome to the Pretium Resources Second Quarter 2021 Conference Call. [Operator Instructions]

I will now turn the call over to Mr. Jacques Perron, Pretium’s President and CEO. Please go ahead.

Jacques Perron — President, Chief Executive Officer and Director

Thank you, and good morning, everyone. Thank you for joining us for our second quarter 2021 operating and financial results conference call. The second quarter started under challenging circumstances. The impact of the COVID outbreak at Brucejack in the first quarter had some residual effects, and we also had to deal with some underperforming stopes at the onset of the second quarter. Thanks to the hard work of our team, we made consistent improvements throughout the quarter. We also continued to make significant progress against our objectives, and we accomplished another profitable quarter.

On today’s call, I will highlight some of the key events of the second quarter. I will then turn the call over to Patrick Godin, our Chief Operating Officer, to provide an overview of our production results, the status of operations and the progress of our construction projects. Then Matthew Quinlan, our Chief Financial Officer, will go over some of the financial highlights of the quarter. Following Matt’s review, I will provide a summary of the underground expansion drill results and a brief update on our exploration program before closing up with a look ahead to the remainder of the year. At the end of the presentations, we will open the line to your questions.

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

Our top priority continues to be the health and safety of our employees, contractors and neighboring communities. Last year, in an effort to renew our safety culture, we launched an extensive companywide health and safety program. Here on the fourth slide is a rolling 12-month lost time injury frequency rate and our total recordable injury rate. Excellence in health and safety is a journey with ups and downs, and we are determined to maintain our efforts to emphasize the importance of safety and ensure it is at the forefront of everything we do.

Despite the challenging start of the quarter, we were able to produce just over 83,000 ounces of gold. As a result, it was another profitable quarter and we generated just under $51 million in free cash flow. During the quarter, we made a voluntary debt payment and repaid the remaining $38 million on the revolving portion of the loan facility. We ended the quarter with a cash balance of approximately $202 million, and with that, we have reached a key turning point, our cash exceeds our debt. Subsequent to the end of the quarter, we refinanced our remaining credit facility on favorable terms and increased our available liquidity.

We have several major initiatives underway, such as accelerating underground development, infill drilling and increasing drilled-up stope inventory with the intent to improve operations at Brucejack. We are also making significant investments in future growth, which includes construction of upgraded camp facilities, a modern assay lab and integrated core shack. Extensive resource expansion and near-mine exploration drill programs are in full swing with drill results expected through the remainder of the year.

As you are aware, a COVID-19 outbreak was declared at Brucejack during the first quarter. Following the outbreak, additional procedures were established, including continued testing of all employees and contractors. A vaccination program has also been ongoing at Brucejack under the guidance of BC Northern Health. As of this week, 99% of our Brucejack workforce has received their first dose of the vaccine and 64% have received their second dose. We will continue to closely monitor the situation and provide updates as appropriate. It is a reminder that COVID remains a risk and could have a significant impact over a short period of time.

I will now turn the call over to Patrick to provide an overview of our operations for the second quarter.

Patrick Godin — Vice President and Chief Operating Officer

Thanks, Jac [Phonetic].

Turning to operations on Slide 8. In the first quarter, we processed approximately 330,000 tons of ore through the mill equivalent to about 3,630 tons per day. This was below our objective of 3,800 tons per day as a result of the lasting effect of the COVID outbreak, along with scheduled shutdown.

Total production costs for the first quarter averaged $214 per ton milled, an increase from the second quarter last year. The cost increase was primarily due to the strong Canadian dollar. Change in the exchange rate increased production cost by about $22 per ton. Higher level of drilling and higher diesel price add an additional $6 per ton compared to the second quarter 2020. The cost increase was partially offset by a $9 per ton reduction in COVID-related cost.

Turning to Slide 9. As you can see, our quarterly rate of underground development has historically been on an upward trend quarter-over-quarter. The onset of COVID stalled our progress in the first quarter of 2020, and then in the first quarter of this year, our rate of development was impacted by the COVID outbreak at site. In the second quarter, we increased our efforts, pushed on underground development and achieved a rate of approximately 1,150 meters per month. We will continue to advance development at this rate to get back in line with our 2021 plan.

As Jac noted earlier, the second quarter began with some challenges, including the COVID outbreak and performance issues with several stopes. We expect these factors to have a negative impact on both our gold production and grade. However, even with the challenges at the beginning of the quarter, we produced 83,000 ounces of gold. This is less than 4% below the midpoint of our guidance range for the year. The mill feed grade averaged 8.6 gram per ton and the recovery rate was 97.4%. Stope performance improved toward the end of the quarter, and as a result, there was 7,700 ounces of gold remaining in-circuit, which is higher than usual for us. Based on our production forecast, we remain on track to be within our full year production guidance range.

To enhance our understanding of the deposit and improve the predictability of production, we continue to prioritize increasing the drill data we collect. Diamond drilling advanced through the quarter with nine diamond drills on site. More than 50,000 meters of diamond drilling was completed in the quarter for a total of 90,000 meter this year. Drilling will continue at an accelerated rate as we pursue our target of 195,000 meters for the year.

Turning to Slide 12. We have maintained an accelerated rate of underground development to increase access, optimize production and improve blending in an effort to balance quarter-to-quarter fluctuations. The increased development rate expand our access to new areas of the deposit and allow us to build an inventory of drilled-off stopes. At the end of the second quarter, we had more than 316,000 tons of drilled-off stope inventory. This is a 15% increase from the previous quarter. Our target is to have about 400,000 tons of drilled-off stope ready to be blasted by the end of the third quarter of 2021. This is roughly equal to a full quarter of production. We acknowledge that given delays related to the outbreak in the first quarter, this is an ambitious goal, but we still believe that it’s achievable by the end of the quarter or early in the four
th quarter.

Slide 13 shows a section view of the underground development looking North. Until this year, mining has been limited to only two mining horizon at Brucejack. Earlier this year, we began production from the lower horizon on the 1080 level. Through the second quarter, we continued to advance development and begin mining from the 1200 and the 1320 level of the fault zone. It has been a major objective for our team to significantly expand our access underground and we are now actively operating from five distinct mine areas.

Our construction and capital expenditures projects began to significantly ramp up in the second quarter as the weather improved at Brucejack. Expansion capital expenditures include construction of a permanent camp and project to support and improve — and to improve the efficiency of operation. Replacement of mine accommodation was required to ensure consistent quality of facilities for all site employees and assist with employee retention.

At the Wildfire Camp, which is situated at the entry of the mine site along the Highway 37, a new 25-person camp was constructed and is now commissioned and occupied.

The Knipple Camp located along the access road houses surface maintenance and serves as a transfer point for access into the Glacier Road. A new 100-person camp is in the final stage of construction and is expected to be commissioned and ready for occupancy in the third quarter.

A fourth wing is being added to the main Brucejack Camp and a second camp to replace the whole construction and exploration and camp is also under construction for a combined 324 new rooms. The building modules are currently being laid with commissioning and occupancy expected in the fourth quarter. This will bring the total number of rooms across the Brucejack mine properties to 775 beds.

To support growth and improve the efficiency of operation a new assay lab and core shack were also built within the line of the new building. The core shack has been commissioned and is now in operation. The assay lab is in the final stage of commissioning. The new assay lab will have the capacity to test 1,200 samples per day. This will significantly improve the turnaround time on assay result and is also expected to improve cost efficiency.

Now I’ll turn the call to Matt for an overview of our financial performance.

Matthew Quinlan — Vice President and Chief Financial Officer

Thanks, Patrick.

Our financial results were strong once again in the quarter. Our results were higher than the first quarter of 2021, but lower than the comparable period of 2020, partly due to the very high level of gold sales during that quarter.

For the second quarter of 2021, we realized an average gold price of $1,804 per ounce, an increase of nearly 4% over the second quarter of 2020. Revenue decreased to $152 million or approximately 8.6%, primarily as a result of lower ounces of gold sold. And in the second quarter of 2021, we sold approximately 84,600 ounces of gold. EBITDA in the quarter was $72.6 million. Net earnings were $0.16 per share and adjusted earnings were $0.15 per share compared to $0.19 and $0.18 per share, respectively, in the comparative periods. The decrease in net earnings was primarily attributed to lower revenues, partially offset by a decrease in interest expense and a decrease in deferred income taxes due to lower pre-tax earnings.

Turning to Slide 18. We once again generated significant cash flow from operations of $73 million for the quarter and had strong conversion to free cash flow of $50.7 million. Free cash flow was directed to debt reduction as we have committed to do. Total capital expenditures in the quarter on a cash basis, including sustaining and expansion capital, were $22.3 million. Liquidity continued to grow in the quarter to over $400 million as of June 30th, and we ended the quarter with approximately $200 million of cash. As Jac mentioned, during the quarter, we voluntarily repaid the entire remaining amount of $38 million under our revolver and subsequent to the quarter end, we financed our credit facility. We ended the quarter with bank debt of $100 million and convertible notes also of $100 million.

Turning to Slide 19. All-in sustaining costs in the second quarter of $1,099 per ounce sold were higher than the comparative period in 2020, but remain within our guidance range for the year. For the first six months of the year, our ASIC is $1,053 per ounce. The increase in ASIC relative to Q2 2020 is the result of higher sustaining capital investments for increased rates of drilling and development, as referenced by Pat; higher production costs, primarily due to the strengthening Canadian dollar; and lower sales in the period. The impact of the strengthening Canadian dollar during the second quarter of 2021 increased all-in sustaining costs by approximately $85 per ounce of gold sold compared to the comparable period in 2020.

Turning to Slide 20. The strong financial performance of Brucejack continues to provide for meaningful debt reduction. And as you can see, we have consistently reduced debt over recent years, while also reinvesting in the mine. Earlier this week, we announced an amended credit facility with our lending syndicate on improved terms. The four-year committed facility increases the size of our revolver by $50 million and reduces the quarterly repayments under the term loan to $5.9 million from $16.7 million.

Lastly, we remain on track to achieve our 2021 guidance. You may recall that in the first quarter conference call, we commented where we were trending on our capital expenditure guidance ranges; we released in January. We said we were at the low end of our sustaining capital and at the high end of our expansion capital guidance at that time. With seven months of the year now completed, we’re amending these guidance ranges, however, there’s no change in the aggregate total of capital expenditure guidance. We’ve lowered our guidance range for sustaining capital by $10 million due to reduced activity levels in the first quarter as a result of the COVID-19 outbreak, as well as to reflect some updated timing of expenditures over the balance of the year.

We’ve increased our guidance range for expansion capital also by $10 million due to increased cost of input materials, detailed engineering being completed and construction activities being well advanced, and to a lesser extent, the strengthening of the Canadian dollar.

I would like to reiterate once again this quarter, the second and third quarters typically see higher levels of capital expenditures due to the summer construction season at Brucejack, with expenditures peaking in the third quarter. Regional exploration activities, which also take place in the summer months, are expensed under our accounting policy that we adopted in January and also peak in the third quarter.

With that, back to you, Jac.

Jacques Perron — President, Chief Executive Officer and Director

Thanks, Matt.

Let me now turn to our exploration activities for 2021. The summer near-mine exploration program was initiated in mid June with two drills positioned on surface. The program is focusing on the trend of highly altered outcrop that extends four kilometers from the Hanging Glacier Zone to the Northwest to the Bridge Zone to the Southeast.

To follow up on the successful discovery of epithermal style gold mineralization at Hanging Glacier in 2020, a drill program was initiated in early July to delineate the high-grade gold corridors and tests for higher grade epithermal-style veins. Hanging Glacier is located approximately four kilometers from the Brucejack mine and is easily accessible in the summer using existing exploration trails. In addition to drilling, the near-mine exploration program includes a high-resolution magnetic survey, MT and IP geophysical surveys, soil sampling and prospecting.

The 2021 Brucejack definition and expansion drill programs are anticipated to total approximately 195,0
00 meters of drilling, comprised of reserve definition and resource expansion drilling. Our resource expansion drill programs continue to successfully intercept high-grade mineralization immediately adjacent to existing underground infrastructure and continue to highlight the potential to extend beyond the Valley of the Kings deposit. For these programs, at the end of the quarter, seven drills were operating with three drills working on the definition programs and four drills testing the expansion potential. This is in addition to the two drills that were active on surface for near mine exploration.

Resource expansion drilling continued through the second quarter with 24,000 meters completed within the North Block and 1080 Level Zones. In early July, two drills from underground were repositioned on surface to complete a 13,000 meter resource expansion drill program at Gossan Hill. At the Bridge Zone, 11,000 meters of underground resource expansion drilling is expected to start in late August.

Slide 25 shows a plan view of the Valley of the Kings deposit with the drill results from the North Block Phase 1 and 2 as well as the results from the 1080 Level Phase 1 drill program. The 1080 Level program conducted from one of the lowest mining levels at Brucejack mine, intercepted high-grade gold mineralization up to 200 meters below and 200 meters east of the current mineral resource shell, with intercepts as high as 1,600 grams per ton gold over one meter. Phase 2 of the 1080 Level resource expansion drill program is in progress and was initiated to infill between the initial drill fans and target the visible gold mineralization to the East.

We also announced Phase 2 drill results from the North Block that was conducted to test the extension of the North Block Zone to the Northwest. The Phase 2 program continue to encounter high-grade gold mineralization up to 450 meters from the current resource shell. Phase 3 of the North Block program was recently completed to infill between the existing drill fans with active results spending. Phase 4 of the program has now been initiated to test the area immediately to the northwest of the current drilling.

With the objective of operational improvements and following a thorough testing process, we have committed to purchase seven battery electric haul trucks to replace our fleet of 12 diesel-powered underground haul trucks. One battery electric truck is currently in operation with the remainder to be progressively dispatched by 2023.

Mobile combustion of gasoline and diesel contributed to roughly 68% of the greenhouse gas emitted from operating the Brucejack mine in 2020. After the rollout of this multi-year plan, we forecast a reduction of approximately 24% or 6,900 tons of carbon dioxide equivalent annually from the implementation of this initiative.

Looking ahead to the rest of 2021, we remain committed to safety. This includes continuing our COVID safety protocols to minimize the potential for another outbreak at site. We are determined to continue to deliver consistent results and remain on track to achieve our ’21 objectives.

Based on our production forecast, we anticipate meeting our annual production guidance. We expect to generate a significant amount of cash this year, which we have already, in part, deployed to reduce the debt. We have now reached a key turning point: our cash exceeds our debt.

Our underground development now provides us with access to five distinct mining areas. We nearly have a quarter of drilled-up stopes in inventory. Our capital expenditures projects are progressing well and our resource expansion drill programs continue to successfully intercept high grade mineralization. Drill results are expected to be released continuously throughout the rest of the year and we will continue to — and will contribute to an updated mineral resource and reserve we plan to release in the first half of next year. We have also launched our near-mine exploration program with the intention to expand on resources in close proximity to the Brucejack mine.

We are really pleased with the hard work of our team and we look forward to reporting back on our progress. Thank you.

That concludes the formal presentation. I will now turn the call over to the operator who will open the line for your questions. Ariel?

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question comes from Heiko Ihle of H.C. Wainwright.

Heiko Ihle — H.C. Wainwright — Analyst

Hey, there. Thanks for taking my questions. Hope you guys are all staying safe.

Jacques Perron — President, Chief Executive Officer and Director

Good morning, Heiko.

Heiko Ihle — H.C. Wainwright — Analyst

I got a question about the chart you have on Page 9 of your presentation. The cumulative underground development appears to be going up in a fairly straight line, which I guess is the whole premise of this chart. But I mean, conceptually, how much longer can you keep up more or less linear growth in underground development before you hit some sort of barrier where you have to then show up further from infrastructure underground for favorable ore? I assume there is no scientific and direct answer to this. But I mean, is this a matter of quarters, years, decades, never?

Jacques Perron — President, Chief Executive Officer and Director

Thank you for your question, Heiko. As we mentioned in the past, our objective is to accelerate development performance in order to open up the mine, open up new mining areas for flexibility and blending, but also open up the mine for — to establish drilling platforms. At the current rate of development, it would be difficult to increase even more. So, at the 1,100 meters per month, we’re at a good rate right now. And again, based on current reserves, we would continue to develop at this rate for maybe a year, year and a half, and then it’s going to come down very quickly. But as we said in the past, we’re very confident we’re going to find additional resources and we’re going to have to open up these areas. So we’ll see what we get from the exploration program this year, but no, we’re — because of the results we are getting so far from the drilling, I expect development rate to continue to be at a higher level for a few more years.

Heiko Ihle — H.C. Wainwright — Analyst

Got it. At the risk of getting another answer along the lines of, as we mentioned in the past, all options are on the table, just thinking out loud, I mean your balance sheet is healthy, and it’s getting more so by the day. You’ve recently refinanced the loan facility at a firm. Meanwhile, shares are below $10, and this includes a 10% plus pop here today. Earlier on the call, you mentioned debt reduction is what we’ve committed to do. But I got to ask, at what point in time, and I assume the Board and you are discussing this in pretty much every meeting, at what point in time would everyone be willing to start some sort of small share repurchase program? And I guess, if you can’t really answer that question directly, I’ll just ask for future plans of capital.

Jacques Perron — President, Chief Executive Officer and Director

Heiko, as we mentioned in the past and our priority was to — is to reduce the debt and we continue that. And as we said in the past as well, until the convert is behind us, we will not be spending a lot of time and energy thinking about dividend or share buyback. So our convert matures in March 2022. So I think when we come back from first quarter — end of first quarter 2022 results, that’s when we’re going to be in — starting to think about this some more.

Heiko Ihle — H.C. Wainwright — Analyst

I have a feeling it would be a decent pop for the shares, if that happens. And then just one quick clarification. How much is left to be spent on th
e Knipple and Brucejack camps as of today, please?

Patrick Godin — Vice President and Chief Operating Officer

The total expense for that is turning around CAD62 million, so probably be around 50% of that.

Heiko Ihle — H.C. Wainwright — Analyst

Perfect. Thank you guys very much. I’ll get back in queue.

Jacques Perron — President, Chief Executive Officer and Director

Thank you, Heiko.

Operator

Our next question comes from Ovais Habib of Scotiabank. Please go ahead.

Ovais Habib — Scotiabank — Analyst

Thanks, operator. Hi, Jac and Pretium team, and thanks for taking my questions. Jac, a quick question from my end. Just on — regarding the Q2 performance, I believe you started talking about it and my call dropped, so I apologize if you have to repeat this. But you have said Q2 was impacted by performance issues with some of the stopes. Can you give us some color as to what changed to the positive in late Q2 to achieve the grade guidance?

Patrick Godin — Vice President and Chief Operating Officer

It’s when we talked about the grade variability of Brucejack is that I can say to you that the first two months of the quarter, we were right in line with our planning. And in the third quarter, we had a stope, mainly one stope — we had two, but mainly one, what made a huge difference in grade, because it’s part of the nugget effect of the ore body. And we have the high-grade feed for the last two weeks of the month, and it was — it mainly impacts positively the production. It’s mainly the difference here.

We are in — when we have stopes like this, as we explained to you previously, we apply a mine [Indecipherable] to our reserves. And in the planning, sometimes we are cutting stope in terms of grade because we afford variability. And in this case, we have a huge and really positive over — improvement on the grade on one stope and it’s what made the difference. And at the end of the month of June, we have — when we are having — placing high-grade like this, we are slowing down the milling process to make sure that we have to improve the recovery. And we had a load of gold in the gold room, and that’s why on a day basis, we increased the inventory at the end of the month because we’re not able to pour it.

Ovais Habib — Scotiabank — Analyst

And that’s the 8,000 ounces of gold in the circuit as well. That’s correct?

Patrick Godin — Vice President and Chief Operating Officer

Yes. That’s what it is.

Ovais Habib — Scotiabank — Analyst

Got it. Okay. And so then going into Q3, moving into Q3, in terms of the drilling that you have in front of production, I believe now you’re sitting at around three months of drill stope inventory. So that’s actually — congratulations, that’s pretty good to see. So how do you see Q3 kind of faring out? Is it going to be fairly similar to what you saw in Q2?

Patrick Godin — Vice President and Chief Operating Officer

We’re expecting in Q3 and Q4, more or less what we planned in terms of the guidance. Slightly better.

Ovais Habib — Scotiabank — Analyst

Got it. And just moving a little bit to the sustaining cost quickly, based on your guidance range, sustaining costs were lower in the first half, despite lowering the guidance for spend by — sustaining capital by $10 million, do you still see a catch-up of these costs in the remaining quarters of the year?

Matthew Quinlan — Vice President and Chief Financial Officer

It’s Matthew here. Thanks, Ovais, for your question. Yeah, we do see a catch-up, I think, in Q3, as I mentioned, we have — that’s our peak spending period both for expansion capital, but also, to a certain extent, the sustaining capital. So, you can see that rise a little bit in Q3 and we’re very comfortable with that $40 million to $45 million range for the year.

Ovais Habib — Scotiabank — Analyst

Okay, perfect. And I still have one more question, but I’ll jump back in the queue and I’ll take my questions later on. Thanks for now.

Jacques Perron — President, Chief Executive Officer and Director

Thank you, Ovais.

Operator

Our next question comes from Wayne Lam of RBC. Please go ahead.

Wayne Lam — RBC — Analyst

Hey, good morning, guys. Just curious in terms of the costs related to safety measures and COVID on the ground, just wondering how things have been progressing post the outbreak. And will those increased safety costs kind of be factored into the mine plan coming up?

Matthew Quinlan — Vice President and Chief Financial Officer

It’s Matthew here. Yeah. The COVID costs are trending down. We did have COVID costs of around about $22 per ounce in the quarter, this per ounce of ASIC in this quarter. And in Q2 of 2020, when we were in the eye of the storm, it was very — it was $50 an ounce. So that is trending down. Our guidance calls for — I think in our guidance, we’ve disclosed for the year, ASIC costs for COVID would be approximately $5 per ounce. We’re still comfortable with that. We may be a little bit higher than that, but it’s a very — very small number. And I think, as Jac mentioned previously, we’re now in the state where most of the industry is taking those costs into their future plans at some level. So that will be part of our budgeting process for next year.

Wayne Lam — RBC — Analyst

Okay. Great. Thanks. And then maybe just wondering back on the grade for the quarter. If you might be able to provide some detail on kind of the monthly grade profile or how it was trending prior to that, I guess, one stope? And just given the prior commentary, was there significant positive reconciliation versus the block model on that one section? And just wondering if you might be able to provide some more detail on that?

Jacques Perron — President, Chief Executive Officer and Director

Wayne, as Patrick mentioned, as you will remember, at the end of the first quarter, when we had the first quarter results, we guided that — we guided — we indicated that we would be at the low end of the range of the guidance, so closer to 80,000 ounces per quarter. And we were tracking right on that forecast for the first and second month. And then in the third month, we had this one stope that gave us a big bump. So we had a significant increase in the month of June. And mainly that, as Patrick mentioned, that increase came not during the whole month. It was the last week — the last two weeks of the month. So that was the impact. We don’t do reconciliation on a monthly basis because of the variability of the deposit. If we look at it on a stope by stope basis, it doesn’t make any sense. So we look at it on a more global basis. And we’ll be able to do our reconciliation like we do every year at year end, and we’ll provide the information when we give our year end results in early 2022.

Wayne Lam — RBC — Analyst

Okay. Got it. Thanks. And then maybe just lastly, just on the fleet replacement. As you guys replace the fleet over the next couple of years, like, is there any incremental cost in terms of capital in moving to an electric fleet?

Patrick Godin — Vice President and Chief Operating Officer

Yes, but it’s included in our program. The cost is including the truck. We are not buying the batteries. We will rent the batteries because we don’t have the expertise to operate that. And also, we have some charging facilities, but it’s a minor investment. And we’ll use — more or less, we’ll use current escalation to fulfill this demand
, but it’s mainly the trucks. And we are expecting a lot from that in term of also the quality of the air, the ground, the efficiency, the truck or faster in the ramp. We are already operating the vehicles since — in partnership with Sandvik since the beginning of December this year, and the trial is really successful and in term of all the aspects of health and safety and also of the efficiency. So — and it will reduce, it will improve our cost mainly because we’ll reduce the manpower and time. So actually, the vehicles are — the diesel vehicles are owned by the mining contractors, and — but the electrical vehicle will be owned by us, and we will operate the vehicle going forward.

Wayne Lam — RBC — Analyst

Okay. Perfect. Congrats on the quarter. That’s all from me.

Jacques Perron — President, Chief Executive Officer and Director

Thank you, Wayne.

Operator

Our next question comes from Joseph Reagor of Roth Capital Partners. Please go ahead.

Joseph Reagor — Roth Capital Partners — Analyst

Good morning, Jac and team. Thanks for taking my questions. Just maybe one more point — hey, maybe one more point of clarity on the single stope that kind of changed the quarter for you guys. Was that stope already drilled off ahead of time when you guys reported, was that May 4th, May 5th, like, did you guys have some concept that there was a chance of this? Or was this something where as you guys did your drilling ahead of time, it became more obvious as you got into the third month of the quarter?

Patrick Godin — Vice President and Chief Operating Officer

Yeah. Usually, the definition is two or three months ahead, so it was more or less the drilling. I don’t know when we signed off on the grid for the stope, probably it was at the beginning of April. But however, a nugget effect is that if you can — we have a drilling pattern when we’re doing the definition drilling. And the [Indecipherable] we can — it’s possible for us, and it’s happened to us really oftenly that when we are drilling, we’re missing the nugget between rolls and between — between the holes and between rings. So, we have a tight drilling pattern because when we are doing the definition of a stope, we have a multiple component to do this.

First, we have the diamond drilling. We are doing also definition diamond drilling. We are having, after that, the development of the stope, because the main advantage that we are doing when Jac explained that we push on development is to push the access to drill the stop in advance to minimize the cost and be more efficient. So we have all the development that we’re recovering the chip sampling and we have the geology. And after that, to do the definitions, we are using RC drills, and we are drilling the stope, and we have a composite per hole. So it’s pretty tight, but basically, the grade showed up in a structure that probably interest the stope between rings and it’s what happened. So, it’s the nature of the ore body.

Joseph Reagor — Roth Capital Partners — Analyst

Okay. Thanks for the clarity on that. And then the second question…

Patrick Godin — Vice President and Chief Operating Officer

And don’t worry, because the grade — if we were able to know that, we will never say that we will lowball the objective for Q2. It’s the nature of the ore body was like this.

Joseph Reagor — Roth Capital Partners — Analyst

Okay. And then second question. Some other companies have reported that they started to see inflationary pressures related to shipping of reagents and on the labor front, etc., and as you know, inflation is a big topic right now. Have you guys started to see inflationary pressure? And can you give any color as to what magnitude and how you’re planning for it?

Jacques Perron — President, Chief Executive Officer and Director

Well, definitely, Joe, we’ve seen steel, lumber increases as we started our construction program for the year. We’re monitoring the situation, and our supply chain department is looking at now that we’re going to start to work on 2022 budget we’re starting to look at what are the assumptions we’re going to take and how we’re going to deal with that. I think for us right now, Joe, what is the — I would say, the more challenging aspect of all this is the lead time or delivery time for supplies. That is what we’re — we have some impact on — in terms of costs, but they haven’t been very significant to date in the big picture, but it’s the delivery times that is — we can see that now things are getting a little more challenging. But we continue — like — it’s not unusual in the current gold price and copper price context to see escalation. We’ve seen this in this business before. And we’re just going to be making sure that we are careful when we’re planning our budget for next year. But other than the exchange rate that is impacting significantly in terms of ASIC costs, we don’t see any major impact between now and the end of the year.

Anita Soni — CIBC World markets — Analyst

Okay. And then just — you mentioned timing on getting stuff. Are there any materials that you guys need to get on a regular basis that you’re concerned about or that there’s any risk to the supply chain for that you can see right now?

Jacques Perron — President, Chief Executive Officer and Director

No, we don’t. At the onset of COVID, the team took the proper measures and increased our inventories of grinding media, reagents, other supplies. So we’re in good position right now. We don’t — like we don’t see any risk of getting supplies. We’re more starting to think about the construction plans and projects for 2022, ordering steel and all that good stuff. And — but overall, we don’t see any risk for ’21.

Joseph Reagor — Roth Capital Partners — Analyst

Okay. Thanks. I’ll turn it over.

Operator

Our next question comes from Anita Soni of CIBC World markets. Please go ahead.

Anita Soni — CIBC World markets — Analyst

Good morning, guys. So a lot of the questions, I guess, have been asked. I just wanted to pick up on one thing that was said was — you said at the end of the quarter, you couldn’t pour the gold. Why is that? Was there a specific reason or was it just timing?

Jacques Perron — President, Chief Executive Officer and Director

Well, it’s — the gold — when the gold gets into the circuit, Anita, it gets out at the end, and it’s difficult to — there’s a pouring capacity we have every day, but there’s also a situation here in British Columbia right now that is impacting us. We normally — well, we transport the dore bars by helicopters. And we have helicopters, normally helicopters that can carry a certain weight, which I’m not going to disclose, but a certain weight of gold. And all those helicopters now are requisitioned by the government to fight forest fires. So we have to operate with much smaller helicopters, which limits the quantity of gold we can get out. So that’s the one other thing that is impacting our ability to ship gold out of site.

Anita Soni — CIBC World markets — Analyst

So this — if this — the forest fires situation continues, we might see more inventory build up before you can draw down…

Jacques Perron — President, Chief Executive Officer and Director

No, I don’t think so. I don’t think — I think our objective is to try to bring it down over the quarter. So to be at the end of the quarter at a more normal level. But again, I don’t know if you follow the situation here in BC, but it’s — BC is burning right now. So it’s challenging.

Anita Soni
— CIBC World markets — Analyst

Same thing on Ontario. So, then just my next question, I guess, I saw the credit facility was increased from $300 million to $350 million. And within that, there was a, I guess, a commentary about being able to capitalize on strategic opportunities as they arrive. So I’m just curious, given that you’ve got $120 million to $170 million, you’re doing well on that in free cash flow this year. You’re paying down your debt. Like, are you looking at diversifying your revenue stream, looking at doing an acquisition at this stage? I think in the past, you had mentioned that maybe in the latter half of the year, you would start to take a look at maybe broadening your revenue streams.

Jacques Perron — President, Chief Executive Officer and Director

Yeah. That comment we made earlier, Anita, continues to be true. We wanted to get the operations in good shape. We always said that until the third quarter this year, which we’re in right now, and we would — our focus would be much more internally. But definitely, as we get closer to the end of the year, we’re going to start to look at what are the next steps for the business. So — and having increased our liquidity in terms of the refinancing and the cash we generate, if — we’re going to be thinking about what we need to do, and we’re going to be in a better position with the current financial capabilities that we have.

Anita Soni — CIBC World markets — Analyst

Sure. And then the last thing on the capital. I guess, going — we’re still referencing, I guess, or taking a look at the old technical report, which, obviously, this year, the capital was much higher in quantum. I think it was supposed to be $53 million, it came in at $120 million, right? And then this 2022 number is kind of like $30 million or so. So as we think about 2022, should we expect that the — that your capital programs fall off this year? What kind of like go-forward number? And then what should we be thinking about in terms of inflation on the capex side of the equation? And then also that $10 million that you didn’t spend in sustaining capital this year, is that going to be pushed into next year? So a very long question with many parts, but I’ll let you answer that. Thank you.

Jacques Perron — President, Chief Executive Officer and Director

I’ll start with the end of your question. The $10 million, yes, definitely, it’s going to move to next year. That’s going to happen.

In terms of capex, we’re going to be higher than the 43-101 next year. We haven’t finalized our budgets for 2022. We’re going to start to work. Well, we’ve started to work on it, but it’s not finalized. But it won’t be at the same level as this year. It will be somewhat lower. We’re not exactly sure how we’re going to end up, but it will be lower than this year.

Anita Soni — CIBC World markets — Analyst

Okay. And then — and then lastly, that commitment to purchase electrified vehicles, like what’s the time frame on which you’re going to be doing that purchase?

Patrick Godin — Vice President and Chief Operating Officer

It will be — we already have one truck at site. We will have — the second truck will show up in November. And after that, all the others are scheduled month after month up to right at the end of August 2022.

Anita Soni — CIBC World markets — Analyst

Okay. So that should be within our 2022 numbers when we’re looking at capital, right?

Jacques Perron — President, Chief Executive Officer and Director

Yeah.

Patrick Godin — Vice President and Chief Operating Officer

Yes.

Anita Soni — CIBC World markets — Analyst

Okay. And can you give us an idea of how much that was?

Patrick Godin — Vice President and Chief Operating Officer

Is it in term of cost of truck?

Anita Soni — CIBC World markets — Analyst

Yeah.

Patrick Godin — Vice President and Chief Operating Officer

It will — a truck is CAD2.3 [Phonetic] million.

Jacques Perron — President, Chief Executive Officer and Director

Canadian.

Anita Soni — CIBC World markets — Analyst

Okay. Thank you. That’s it for my questions.

Operator

Our next question comes from Don DeMarco of National Bank Financial. Please go ahead.

Don DeMarco — National Bank Financial — Analyst

Thank you, operator. Hello, Jac and team. My first question, the point of drilling off the inventory is to tame the production volatility. And there was a key stope that factored into Q2 that we’re hearing about. But with a strong Q2 and the previous quarters, we’re seeing that this production volatility is decreasing. So is it fair to say that your strategy to drill off the inventory is working and that you have higher confidence in achieving production and grade targets going forward?

Jacques Perron — President, Chief Executive Officer and Director

Definitely, Don, you’re bang on. If you look at our performance, there’s a slide in the presentation that shows compared to the midpoint of the guidance, with the high end of the guidance and the low end of the guidance on a quarterly basis, we’ve been tracking within 5% for a number of quarters now. And in an ore body like ours to be able to do that, it’s quite remarkable. And the team has done an excellent job, excellent job, drilling and advancing the knowledge. And, yes, on a stope by stope basis, we’re going to see some up and down, and it’s going to happen. But overall, I think we’re — we can say that our production is fairly consistent. We’re — as Patrick mentioned, we’re expecting the next quarters to be more or less in line with the guidance, the mid range. And we think maybe even slightly higher than the mid-range, but we’re going to be within that band as far as we can see. So, yes, very — we’re getting — with the five areas that we have opened up with the drilling inventory, we’re a lot more consistent. And we have a lot more confidence in what is coming in front of us.

Don DeMarco — National Bank Financial — Analyst

Okay. Yeah, great. Because — I think the point of it is that the market likes to see that hitting the midpoint of guidance in a way. And if there’s any given quarter that you have low throughput, that can be — you have the ability to pull levers and offset that with slightly higher grades. So I’ll take that as encouraging, and we’ll look forward to the next couple of quarters. Just a couple of other quick questions. So can you remind us, are you planning an updated technical report in life of mine plan for next year? If so, can you just remind us of the timing?

Jacques Perron — President, Chief Executive Officer and Director

Yes. As we said earlier, Don, we’re planning to issue an updated 43-101 in the first half of next year, most probably more in the second quarter than the first quarter. We’re still debating when we’re going to do the cutoff on all the drilling and all that good stuff. But, for sure, it will be out in the first half of 2022.

Don DeMarco — National Bank Financial — Analyst

Okay. Great. And finally, the convertible debts due in March, is it your intention to pay this off with cash? And can you also remind us what the level of debt that you’re comfortable with?

Matthew Quinlan — Vice President and Chief Financial Officer

Sure. It’s Matthew Quinlan here. We are planning to pay that off with cash. As Jac and I have mentioned in the past, we want to exit that maturity with at least $100 million of c
ash on the balance sheet. So we do have the ability to draw on the revolver to redeem that. But given our cash position, we would anticipate funding that redemption with cash on hand.

With respect to debt in the past on the balance sheet, we don’t have a specific number, but Jac, myself and Pat all believe that lower leverage in a commodity business is generally a good thing. And certainly, under one turn of funded debt is something that we would be entirely comfortable with, maybe even a little bit less than that. We’re also cognizant we’re a single asset producer. So as Jac has mentioned in the past, we want to have a lot of liquidity and also cash on hand as well.

Don DeMarco — National Bank Financial — Analyst

Okay. Thank you, gentlemen. That’s all from me.

Jacques Perron — President, Chief Executive Officer and Director

Thank you, Don.

Operator

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

Jacques Perron — President, Chief Executive Officer and Director

Thank you, everyone, and thank you for joining us this morning. I would like to thank you and thank the team for the interest in what we’re doing here and thank our entire Pretium team and all our partners and contractors and people that work with us for their dedication as we look forward to a very exciting second half of 2021, as we continue to execute on our plan and achieve our objectives. So, we wish everyone a very nice weekend and be safe out there. Thank you very much.

Operator

[Operator Closing Remarks]

Duration: 52 minutes

Call participants:

Jacques Perron — President, Chief Executive Officer and Director

Patrick Godin — Vice President and Chief Operating Officer

Matthew Quinlan — Vice President and Chief Financial Officer

Heiko Ihle — H.C. Wainwright — Analyst

Ovais Habib — Scotiabank — Analyst

Wayne Lam — RBC — Analyst

Joseph Reagor — Roth Capital Partners — Analyst

Anita Soni — CIBC World markets — Analyst

Don DeMarco — National Bank Financial — Analyst

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