January 10, 2021 - 10:52pm EST by
2021 2022
Price: 1.21 EPS 0 0
Shares Out. (in M): 91 P/E 0 0
Market Cap (in $M): 110 P/FCF 0 0
Net Debt (in $M): -19 EBIT 0 0
TEV ($): 91 TEV/EBIT 0 0

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Bonterra Resources (BTR) owns a number of gold mining projects in the Urban-Barry/Windfall camp, 150km northeast of Val d’Or in Quebec. The company announced on November 11th last year that it had received an unsolicited all-share bid “from a large third party” at C$1.60 per share, valuing the company at C$124m, but that it viewed the bid as “opportunistic” and inadequate. 


It then proceeded to raise C$15m at C$1.15 per share to finance an aggressive works program to demonstrate the hidden value in the company.


We were initially skeptical of this strategy, but further research as well as recent exploration successes and positive metallurgical results from a bulk sample have won us over. We now believe that a new bid at C$2.00 is entirely possible before the end of this year. Alternatively, the company has several options to re-start open pit mining within a 2 year time frame, to take advantage of the strong gold market.


Background to the bid

BTR owns the only permitted gold mill and tailings facility in a radius of 110km in the Urban-Barry camp, which includes Osisko Mining’s 5m oz Windfall project. BTR commenced the process to increase the permitted capacity of the mill and tailings facility in April 2017. The company expects permission to be granted by the end of this year, following which the capacity will be increased from 800tpd to 2,400 tpd. 


While the identity of the BTR bidder was never disclosed, the chances are high that it was Osisko. BTR’s Barry and Gladiator Resources (1.94m ozs) are contiguous to Windfall and fit like a jigsaw. A merger therefore makes a lot of sense for both sets of owners. 



Map showing BTR’s Bachelor mill and tailings complex next to its Moroy underground mine.


Why the opportunity exists

BTR has seemingly fallen out of favor with investors due to its over eagerness to drill deep holes in a very complex part of the Abitibi Greenstone belt. In our view the isolated ore lenses with narrow veins are likely to yield tepid returns under normal market conditions. 


The group has avoided the obvious strategy of drilling cheap, shallow holes to delineate open-pit resources and to restart the historic Barry open-pit mine. Studies by Metanor Resources (the previous owners of Barry and the Bachelor mill), showed attractive returns at a gold price of C$1,650 per oz. The enlarged resources must therefore be extremely viable at today’s gold price of C$2,350/oz.


The historic Barry open pit produced 43,682ozs of Gold and 5,727 ozs of Silver from 617kt of ore between 2008 and 2010, at a grade of 2.2g/t and a recovery factor of 92.6%. (Metanor Resources 43-101 2016, p.98)


The company’s profligacy has taken its toll, with BTR one of the stand-out losers among junior gold stocks in 2020, declining by 46%. The stock has now lost 78% of its value in the past 3 years, compared to +2% for Osisko Mining. 

Why an improved bid is likely by year-end

While BTR has continued to drill holes of up to 580m in the past few months, it has met with considerable success in proving up shallow ore at Barry North as well as Barry HI and Gladiator Main. These step-out holes at Barry North and Barry HI are very encouraging, demonstrating a large potential increase in open-pittable Resources. The results were released 4 days before Christmas, which may explain why the market paid no attention to them.


Map of BTR’s Barry Project. The scale at the bottom of the map is 300m


Holes MB20-302 and MB20-295 are the 2 most northerly holes (stars) on the map, close to the Mazeres fault. The annotated ore grades are from depths of just 73m for hole 302 and 6.5m for hole 295. The westerly holes at Barry HI (294, 296 and 298), are likewise very shallow. They intersected mineralization commencing from 64m, 62m and 48m, respectively. 


There was similar good news from Gladiator in late November, where hole BA20-24 intersected impressive grades of 14.3 g/t Au over 2.1m from just 57m and BA20-22 intersected 2.8g/t Au over 2m. These intersections came from the Main Zone, seen on the map below.




Map showing BTR’s Gladiator project (dark brown rectangle on the inserted map, situated east of the Barry project (light brown rectangle on the inserted map)


While we are unenthusiastic about BTR’s Moroy underground project at the Bachelor mill, the company released an encouraging set of results from the processing of an 11kt bulk sample from Moroy on December 23rd. The head grade of the ore exceeded expectations, delivering 9.3% more gold than the theoretical block model and at a metallurgical recovery of 94.9% vs 96%. 


As part of the works program, BTR is set to release a series of updated Resource Statements to incorporate the vast amount of drilling, modeling and test work of the past 18 months. This will then serve as the basis for a PEA for all 3 projects, which will be released in September. The company also hopes to receive formal permitting of increased milling and tailings capacity for the Bachelor milling complex by November, as detailed above.


BTR’s works program that is being funded by the C$15m raise from November last year


Why BTR could be worth C$2.00 

BTR is trading at a discount to its peers. (See table below)


One should treat the following table with caution for a number of reasons, not least because the market cap is incorrectly stated as US$69m, whereas the post C$15m raise market cap at the date of the presentation (11/25) was C$115m (US$88.4m). Nevertheless, BTR’s corrected Price to NAV of ~0.38 is cheap in both absolute and relative terms. 


Comparative table that informed the Board’s decision to decline the C$1.60 bid

The valuation also excludes the value of the Bachelor mill and the expected increase in the Resources that will be booked this year. 


Bottom Line

The significant drilling of the past 18 months is beginning to show real promise for a meaningful open pit operation at the combined Barry/Gladiator asset. Restarting the historic Barry open pit will require limited capex and will have a short pay-back period. It would therefore make a valuable addition to Osisko’s Windfall mine and cash flows. 


If BTR can secure permission for the increased capacity at Bachelor, then the mill would not only save a lot of capex and teething troubles, but also shorten Windfall’s timeline to production by more than 4 years. (BTR’s application process : April 2017 – Nov 2021).


We therefore believe that the Board’s call to decline the C$1.60 bid, will prove to have been correct and that investors will earn a handsome risk-adjusted return from BTR by year-end.

I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise hold a material investment in the issuer's securities.


Release of the PEA 

Approval of the Bachelor Mill's capacity increase


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