$10M capped BPM drilling now, 40km along strike from $223M capped Rumble Resources

Disclosure: S3 Consortium Pty Ltd (The Company) and Associated Entities own 1,670,000 BPM shares and 850,000 BPM options at the time of publishing this article. The Company has been engaged by BPM to share our commentary on the progress of our Investment in BPM over time.

It has been a long time coming, but the time is finally here.

Yesterday, our exploration investment BPM Minerals (ASX:BPM) confirmed that drilling had commenced at its lead-zinc Hawkins Project which sits along strike from ($223M capped) Rumble’s discovery.

We made our first investment in BPM almost 11 months ago after seeing Rumble Resources’ share price move from 10c to a high of nearly 80c when it made the Chinook lead/zinc discovery in the Earaheedy Basin, WA.

BPM’s Hawkins Project sits ~40km northwest along strike from the Rumble Resources Chinook lead-zinc discovery and has similar “structural geological fundamentals” — meaning it sits on similar rock formations to the discovery.

BPM is going into this round of drilling with a tiny market cap of $10M.

Having recently raised $3M to add to its $3.8M in cash in the bank (at 31 March), BPM has a tiny enterprise value of just ~$3.2M.

Let’s be clear: the market is valuing BPM’s Hawkins Project, plus its other side-bet projects in WA, along all the associated discovery potential of these at just over $3M (for that you might get two average houses in Sydney).

This low valuation makes it very highly leveraged to the upside should BPM deliver promising exploration results or make a new discovery in this region.

We initially expected BPM to drill in late 2021 but with delays in the permitting process, BPM only received the permits in February and completed all the heritage surveys at the start of this year.

In yesterday’s announcement, BPM confirmed that the ~7,500m drilling program would be a combination of aircore and RC drilling.

Not often do you see a first pass drilling program use both aircore and RC rigs.

This is because BPM have designed the drilling program so that the aircore drilling is used to map out and better understand the geology beneath the ground. The RC rig is used concurrently to test any deeper prospective targets.

BPM are effectively making up for lost time. Instead of doing aircore drilling, waiting for results and then coming back with a heavier rig, are doing both at the same time.

We have always been clear about the Hawkins Lead-Zinc Project near Rumble Resources being our core focus for our investment in BPM.

This is because BPM’s project was pegged BEFORE Rumble made its discovery and before the Earaheedy Basin became of interest to the rest of the market.

Since the Rumble discovery we have seen multiple junior explorers enter the Earaheedy Basin. Almost all of these companies have rallied simply based on announcements that they now have exposure to grounds in the area.

The key difference between BPM and these other explorers is that BPM had pegged its ground BEFORE Rumble made its discovery.

BPM is also trading at a discount to some of its peers in the basin. Castle Minerals, for example, trading at a market cap of $36M.

BPM recently raised $3M via a placement at 21c per share (BPM is currently at ~17c), and had $3.8M in cash at the end of March. This suggests that BPM is sitting on almost $6.8M in cash going into this drilling program.

Again, with a current market cap of just $10M, BPM is trading at a tiny enterprise value of just ~$3.2M, leaving the highly leveraged to a new discovery.

Of course, its rare that new discoveries are ever made in the first round of drilling. Take Rumble as an example. Rumble had historical drilling results from ~64 RC drillholes and 4 diamond drillholes, plus multiple rounds of RC drilling before confirming a discovery in January 2021.

Rumble went through the entire resource delineation process from target generation works, setting exploration targets, RC drilling, and then diamond drilling before it confirmed its discovery.

Meanwhile this will be BPM’s first crack at its project. For us, we will consider the drilling program to be a success if it identifies interesting enough targets that warrant follow up drilling.

With the drilling program started, BPM are delivering on key objective #1 of our 2022 Investment Memo:

More on the drilling program

BPM has been very specific — this first drilling program is testing the underground rock formations that are present over its project area, something we referred to a lot in our previous note.

In that previous note we touched mostly on the structural geological similarities between Rumble Resources’ Chinook lead-zinc discovery and BPM’s Hawkins Project.

In particular, the Frere Formation (the tan shading in the map below) and the Yelma Formation (blue shading).

The significance of all of this? Rumble's discovery was made in an area where two rock formations meet.

BPM will be drilling all across the areas where these two rock formations meet.

The structural geological similarities don't end there though. The second similarity is related to the fault-lines that run through the Earaheedy Basin.

Rumble’s Chinook discovery sits right on top of a massive fault line that runs north-westerly straight through BPM’s Hawkins Project.

Our arm-chair geologists interpretation is that there is an increased probability of mineralisation where fault-lines and secondary fault lines occur, which comes about from thousands of years of rock-movements well below the surface.

The image below highlights those fault lines as solid white lines.

BPM has put together five specific corridors where drilling will take place (the dark blue lines in the image below).

Four of these will be across the two formations and the last one will test the two major fault lines that run through the Hawkins Project.

All of these will be over parts of the project’s Frere Formation (shaded in purple on the map below) and the Yelma Formation (shaded in blue) meet.

Two of these corridors will also run directly into the Pinnacles Prospect, which has historic RC drilling results including a peak intercept of 2m @ 0.56% lead-zinc. This alone is a first promising sign that there is mineralisation on BPM’s ground.

The historical drilling was done by Rio Tinto, which was predominantly focused on making an iron ore discovery, so the lead-zinc results were ignored at the time. The intercept was made at a depth of just ~40m, so there is still plenty of exploration work BPM can do in and around this area.

So to summarise, the focus of the current round of drilling is to test BPM’s project over the areas where the Frere and Yelma rock formations meet.

This means that BPM are not directly focusing on the EM targets there were identified in the far south-east of the tenement boundary.

This will mean that BPM still has a lot of exploration upside at the Hawkins Project beyond this current round of drilling.

What’s next for the Hawkins Project?

~7,500m AC/RC drilling program at the Hawkins Project 🔄

Drilling is now underway at the Hawkins project and is using a mixture of aircore/RC drilling mostly designed to get a better understanding of the geological structures that the Hawkins project sits on top of.

BPM have detailed that they will be using a hand held XRF analyser which will mean that any interesting results from the aircore drilling can then be immediately followed up with the heavier RC rigs BPM have on stand by.

What do we want to see from the drilling program?

We know that the probability of a junior explorer walking up and making a discovery with its first drilling program is very low.

The aim for any first pass program should be to get a better understanding of the ground the project sits on and work out where more of the company's capital and time should be focussed.

This is likely a reason why this round of drilling won’t focus on the EM targets.

We suspect BPM will look to combine the best targets from this round of drilling with a second drilling program using heavier drill rigs at some stage later this year or in early 2023.

As with any of our junior exploration investments, we look at these first pass drilling programs with realistic expectations.

For this round of drilling we have set one expectation which we think would be a great result:

• Seeing BPM prove there is enough meat on the bones to warrant coming back and doing more drilling.

We will then consider BPM's commentary around the drilling program to get an idea of which areas of the project it will focus on during future exploration rounds.

🎓 = To learn more about how we go about setting our expectations for drilling events check out our educational article here.

What about BPM’s side bets?

In our last note we mentioned BPM had started a low cost aircore drilling program across a set of EM targets at its Nepean Nickel Project in WA.

The 3,000m aircore drilling program, targeting 11 specific EM conductors, is now complete.

BPM has called these conductors “eastern, western and southern clusters”.

These targets were put together after a drilling program in May 2021 and follow up surveys over the areas where BPM made intercepts ranging from 5m to 47m, with peak nickel grades of ~0.36%.

In its most recent quarterly report, BPM said the assay results from this program are pending.

Given we haven't seen any visible sulphide intercepts, we are not expecting the results to be company making. But it will still be interesting to see what BPM has found across those EM targets.

To see our in depth coverage of these targets check out our previous note here:Side-Bet: Nickel EM targets picked up in MLEM surveys - fast tracked AC drilling next week.

BPM also holds the Claw Gold Project which sits over a total 134km^2 project area with ~33km of prospective strike directly to the south of ASX-listed Capricorn Metals’ (capped at $1.35 billion) Mt Gibson Gold Mine.

Capricorn recently acquired that project, which has a 2.1M ounce gold resource, for $39.6M.

BPM’s projects sit less than 1km from the proposed open pit and with two high-priority drill ready anomalies, this project could also become of interest later this year.

The two specific anomalies are right near the border of BPM and Capricorn Metals project areas. The first anomaly covers a prospective area of ~1,000m x 500m and the second an area of 1,200m x 400m.

BPM is now completing land access agreements ahead of a planned geochemical surveying program in Q2 2022.

Another of BPM’s side bets that we listed in our 2022 BPM Investment Memo is the Santy Gold Project.

Here, BPM previously completed a round of aircore drilling and put together a 2.2km long zone that it believes is anomalous for gold.

What was initially ~17 different priority gold, nickel-copper and base metal drill targets has now become a ~2.2km target area.

BPM is currently getting heritage access agreements completed over this project and in a recent Investor Presentation outlined that it would be drilling this project immediately after the Hawkins drilling (which only started yesterday).

With our BPM investment we are predominantly focused on the Hawkins Project in the Earaheedy Basin but we did group the activity across these sidebets under key objective #2 of our 2022 BPM Investment Memo.

Below are the specific drilling programs we wanted to see from BPM across these side bets, as detailed in our Memo.

With respect to timing across these sidebets, we found this page from BPM’s recent investor presentation really useful:

What could go wrong for BPM?

Going into the drilling program we like to go back and review all of the key risks that our Investments still have.

This helps us stay objective once the results from the drilling program comes out.

Some of the key risks to watch out for going into a drilling program are things like “financing risks”, “commodity risks” and of course the obvious one “exploration risks”.

Knowing that the drilling program could return nothing and require our portfolio companies to go back in and do more drilling we like to see our exploration companies have very healthy cash balances.

BPM having just raised $3M and having $3.8M in cash at the end of the March quarter, there is some sense of security here should the results from the drilling program be disappointing.

Trading with an enterprise value of ~$3.2M and having close to ~$7M in cash, we expect the market to be more forgiving given BPM have enough financial capacity to go back and drill its project again.

Below is a screenshot of the key risks from our 2022 BPM Investment Memo.

Our 2022 BPM Investment Memo

Below is our full 2022 Investment Memo for BPM where you can find a short, high level summary of our reasons for investing.

The ultimate purpose of the memo is to track the progress of our portfolio companies using our Investment Memo as a benchmark, throughout 2022.

In our BPM Investment Memo you’ll find:

• Key objectives for BPM in 2022
• Why we continue to hold BPM
• What the key risks to our investment thesis are
• Our investment plan