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In re Pretium Resources Inc. Securities Litigation

United States District Court, S.D. New York

June 13, 2017

In re PRETIUM RESOURCES INC. SECURITIES LITIGATION This Document Relates To: All Actions

          Phillip C. Kim The Rosen Law Firm P.A., New York, New York Sara Esther Fuks Milberg LLP New York, New York Jeremy Alan Lieberman Pomerantz LLP New York, New York Counsel for Lead Plaintiff Pretium Inv. Group

          John Anthony Kehoe Jonathan K. Levine Girard Gibbs LLP New York, New York Counsel for Plaintiff Michael Yeo

          Daniel Jonathan Kramer William Baly Michael Paul, Weiss, Rifkind, Wharton & Garrison LLP New York, New York Counsel for Defendants.

          MEMORANDUM & OPINION

          VERNON S. BRODERICK UNITED STATES DISTRICT JUDGE.

         In this putative class action, lead plaintiffs Gary Martin and Sandra Lee Reyes Troyer, and plaintiff Michael Yeo (collectively, “Plaintiffs”) claim that Defendants Pretium Resources, Inc. (“Pretium”) and three individual Pretium officers-Robert Quartermain, Kenneth McNaughton, and Peter de Visser-violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”), 15 U.S.C. §§ 78j(b), 78t(a), and the United States Securities and Exchange Commission's corresponding rule, 17 C.F.R. § 240.10b-5 (“Rule 10b-5”). Plaintiffs allege that Pretium and its officers made materially false and misleading statements to investors. Before me is Defendants' motion to dismiss Plaintiffs' Second Consolidated Amended Class Action Complaint for failure to state a claim. Because Plaintiffs fail to allege the requisite scienter needed to plead a claim of securities fraud under the Exchange Act, Defendants' motion to dismiss is GRANTED.

         I. Background[1]

         A. Parties

         Pretium is a public company whose shares trade on the New York Stock Exchange (“NYSE”). (SAC 35.)[2] It is engaged in (among other activities) mining, exploring, and acquiring gold-bearing properties. (Id. ¶¶ 50-51.) Its gold production and exploration activities are primarily in the Americas. (Id. ¶ 50.)

         Lead plaintiff is suing on behalf of a putative class of persons who purchased common stock of Pretium between June 11, 2013 and October 22, 2013 (the “Class Period”), and retained such shares until after the Class Period ended. (Id. ¶¶ 1, 33.) Plaintiffs allege that Pretium's stock price was artificially inflated during that period as a result of material, uncorrected misstatements, and that they were damaged as a result.

         The three officers whom Plaintiffs have sued are: (1) Robert Quartermain, Pretium's President and CEO, (id. ¶ 36); (2) Kenneth McNaughton, Pretium's Vice President and Chief Exploration Officer, (id. ¶ 40); and (3) Peter de Visser, Pretium's CFO, (id. ¶ 39) (collectively, the “Individual Defendants”).

         B. Timeline of Pretium's Brucejack Project

         The Brucejack Project is an advanced stage mining and exploration project located in northwestern British Columbia. (Id. ¶ 2.) On October 28, 2010, Pretium acquired the Brucejack Project, among other assets, from Silver Standard Resources Inc. (Id. ¶ 50.) The Brucejack Project is Pretium's main mineral project. (Id. ¶ 2.) In 2012, Pretium began hiring independent expert consultants, known as “Qualified Persons” or “QPs, ” to develop estimates of the Brucejack Project's potential gold resources. (See Id. ¶ 5.)[3]

         1. November 2012 Snowden Report

         Pretium hired Snowden Mining Industry Consultants (“Snowden”) to prepare mineral resource estimates for the Valley of the Kings zone (the “VOK”) of the Brucejack Project in November 2012, which forecast that the VOK contained gold resources of 16.1 million tons at a grade of 16.4 grams per ton (“g/t”) and inferred gold resources of 5.4 million tons at a grade of 17.0 g/t. (SAC ¶ 4, 54, 57.) Snowden also recommended further test work to confirm the findings of the test work to date, including mining and processing of a 10, 000 ton representative bulk sample from VOK. (Snowden Report 14.)[4] Snowden indicated that the budgeted cost was $20 million Canadian dollars (“CAD”) for the drilling and associated studies and $30 million CAD for the underground bulk sample. (Id. at 102.)

         2. June 2013 Feasibility Study

         Pretium hired Tetra Tech to oversee and complete a feasibility study of the Brucejack Project. (See SAC ¶ 110; Michael Decl. Ex. 8 at 1-1.) Pretium also hired AMC Mining Consultants (Canada) Ltd. (“AMC”) and Snowden to provide the “mineral reserve estimates” for the feasibility study. (Michael Decl. Ex. 8 at 1-1; see SAC ¶ 5.)

         On June 11, 2013, Pretium issued a press release announcing the feasibility study, specifically that: (1) the VOK contained probable mineral reserves of 6.6 million ounces of gold; (2) the Brucejack Project mine would have a life of 22 years and produce 7.1 million ounces of gold; (3) the Brucejack mine would have an average annual production of 425, 700 ounces of gold over the first ten years and 321, 500 ounces of gold over the life of the mine; (4) the mine would operate with a processing rate of 2, 700 tons per day and mine a total of 9.6 million tons of ore for the first ten years at an average mill feed grade of 14.2 grams gold per ton; (5) the mine's project capital costs, including contingencies, would be $663.5 million United States dollars (“USD”); and (6) the project's average operating costs would be $156.46 CAD per ton milled over the life of the mine. (SAC ¶¶ 110-11.) On June 28, 2013, Pretium filed a Form 6-K containing the results of its June 21, 2013 feasibility study (the “June 2013 Feasibility Study”). (SAC ¶ 113; see generally Michael Decl. Ex. 8.)

         3. Bulk Sample Program

         Pretium hired Strathcona in late 2012 to oversee and report on its 10, 000 ton bulk sample program, which included: (1) excavation of a 10, 000 ton bulk sample; and (2) a 15, 000-meter underground drill program (the “Bulk Sample Program”). (SAC ¶¶ 5, 59-60; Michael Decl. Ex. 17 at 1.) On May 28, 2013, Pretium issued a press release concerning its Bulk Sample Program, and indicated that the first underground hole drilled as part of the VOK Bulk Sample Program intersected visible gold and confirmed the projection of high-grade gold mineralized domains. (SAC ¶ 69; Michael Decl. Ex. 5 at 1.) Pretium also announced that it was scheduled to begin excavation of the bulk sample in mid-June of 2013. (See Michael Decl. Ex. 5 at 2.) Pretium would utilize a sample tower and mill to process the excavation samples. (Id.) The 10, 000 ton bulk sample would first be excavated in 100-ton rounds. (Id.) Each round would be crushed and run through the sample tower. (Id.) The sample tower would then extract two 30-kilogram representative samples from each 100-ton round that it processed. (Id.) The remainder of the bulk sample would be shipped to a mill for processing. (Id.)

         Pretium disclosed that the assay results of the sample tower would be reported by Strathcona in its report on the Program, which was “expected later in the year after compilation of all data.” (Id.) Pretium also disclosed that “[a]ssay results from underground drilling will be reported as they are received.” (Id.)

         Less than two weeks later, on July 23, 2013, Pretium issued a press release announcing that it had discovered the Cleopatra Vein. (SAC ¶ 117.) Pretium disclosed that the Cleopatra Vein was discovered while excavating “in an area of projected extreme grade mineralization.” (July 23rd Press Release 1.)[5] Pretium further disclosed that the Cleopatra Vein was defined for approximately 85 meters, intersecting the 6258015N drill drift at the 426630E cross-section and trending to the southwest where it intersected the 426615 cross-cut and trended south along section 426615E. (Id.) Pretium also provided a map of the level plan and cross-sections of the Cleopatra Vein. (Id.) Pretium explained that “[p]lanning is underway with [Strathcona], the independent Qualified Person for the Program, to increase the portion of the bulk sample tonnage testing the higher grade blocks in the Indicated Mineral Resource estimate to the east of the 426600E cross-cut and decrease the portion of the bulk sample tonnage to the west of the 426600E cross-cut.” (Id. at 2; SAC ¶ 83.) The press release reported all drill results from the Bulk Sample Program for July 2013. (July 23rd Press Release 3-7.) The press release distinguished the results from the Cleopatra Vein from the general bulk sample by including a header in bold font entitled either “Cleopatra Vein Drill Fan Section” or “Bulk Sample Drill Fan Section.” (Id.) The press release also reiterated that the Brucejack project was being advanced as a high-grade mine with an expected average of 426, 000 ounces of gold produced annually for the first 10 years, and an average of 321, 500 ounces of gold produced annually for the mine's 22-year life. (Id. at 7-8.)

         On August 1, 2013, Pretium issued a press release announcing highlights and significant events during its second quarter, including: (1) the June 2013 Feasibility Study results; (2) the July 2013 discovery of the Cleopatra Vein; and (3) working capital of $37.9 million. (Aug. 1st Press Release.)[6] The August 1st press release reiterated Pretium's view that Brucejack was being advanced as a high-grade underground mine with an average of 425, 700 ounces of gold produced annually for the first ten years and an average of 321, 500 ounces of gold produced annually over the mine's 22-year life. (Id. at 4.)

         Two weeks later, on August 15, 2013, Pretium reported its underground drill results from the VOK and stated that assays from the program “continue to confirm the projection of high-grade gold mineralized domains, and visible gold continues to be encountered.” (SAC ¶ 128 (emphasis omitted).) In accordance with Pretium's July 24th disclosure, the Company disclosed that it was moving the Bulk Sample Program's excavation location from 416585E-426615E to 426555E-426585E. (Id. ¶ 130.) It also disclosed that additional underground drilling and excavating was underway to test the extent of the Cleopatra Vein. (Id. ¶ 132.)

         On September 9, 2013 and September 23, 2013, Pretium disclosed its drilling results and announced that these results continued to confirm the projection of high-grade gold mineralized domains. (Id. ¶¶ 134, 138, 140.) It also disclosed that the Company intended to continue excavating in the Cleopatra Vein. (See Michael Decl. Exs. 26, 27.)

         Pretium then reported on October 3, 2013, that all excavated material from the Bulk Sample Program had been sampled by the sample tower and the material not designated for assaying was being shipped to a mill in Montana for processing. (SAC ¶ 142.) Pretium expected gold recoveries to average approximately 90%. (Id.) Pretium also stated that Strathcona was engaged as the independent QP to oversee and report on the Bulk Sample Program. (Id.)

         4. Strathcona's Resignation

         On October 9, 2013, Pretium issued a press release disclosing that Strathcona resigned prior to the completion of the Bulk Sample Program and the issuance of its report. (Michael Decl. Ex. 12 at 1.) This press release disclosed for the first time that Pretium expected “that approximately 4, 000 ounces of gold will be produced in total from the material excavated for the Program, as defined by the Valley of the [2012 Resource Report] for that area of the Valley of the Kings.” (Id.; SAC ¶ 147.) Following this announcement, Pretium's stock price dropped $2.07, or approximately 30 percent, to $4.70 per share when the market closed on October 9, 2013. (SAC ¶ 148.)

         Two weeks later, Pretium issued a press release on October 22, 2013 informing the public that Strathcona advised the Company that:

[T]here are no valid gold mineral resources for the VOK Zone, and without mineral resources there can be no mineral reserves, and without mineral reserves there can be no basis for a Feasibility Study . . . [S]tatements included in all recent press releases [by Pretium] about probable mineral reserves and future gold production [from the Valley of the Kings zone] over a 22-year mine life are erroneous and misleading.

(Id. ¶ 149; Michael Decl. Ex. 13 at 3.) Strathcona further advised the Company that “[t]he infrequent high-grade intercepts reported in the press releases have been shown in the underground exposures of the bulk sample program to usually be of very narrow width (0.5 meters) and associated with narrow geological structures that occasionally have mineable continuity as in the case of the Cleopatra Vein.” (SAC ¶ 150; Michael Decl. Ex. 13 at 3.) Following this announcement, Pretium's stock price dropped another $1.27, or approximately 27 percent, falling to $3.36 per share when the market closed on October 22, 2013. (SAC ¶ 151.)

         IL Proce ...


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