BPM drill results due any day now. Last day before loyalty option ex date.

Disclosure: S3 Consortium Pty Ltd (the Company) and Associated Entities own 4,335,000 BPM Shares and 850,000 BPM Options at the time of publishing this article. Some shares are subject to shareholder approval. The Company has been engaged by BPM to share our commentary on the progress of our Investment in BPM over time.

A few weeks ago BPM Minerals (ASX:BPM) hit high-grade gold at its greenfields exploration project directly next door to $2.2BN Capricorn Metals.

The drillhole returned 30m @ 1.84g/t gold from 25m, inc. 5m @ 7.12g/t gold from 35m.

A classic ‘discovery hole’ - and at the perfect time - with the gold price at all time highs.

BPM has drilled two more aircore holes either side of the discovery hole to test if they are really onto something big...

These assay results “are expected in mid October” -

which means any day now...

IF these two holes deliver more gold it could be “game on” for BPM’s new discovery.

After that we want to see deeper RC drilling to find out how big the discovery could be.

The late September discovery hole took BPM’s share price from ~5c to a high of 14.5c on huge volume.

The company then raised $1.675M at 10c to keep on drilling (total pro forma cash is now $3.85M).

Yesterday BPM confirmed a “loyalty option entitlement” to reward “loyal” long term BPM shareholders for holding onto their shares.

The record date is October 14th... so actually even anyone who just strolls on in and buys BPM shares today (at the latest) also will qualify for the 1 for 4, 15c loyalty option.

(yes, despite the fact that these Johnny-come-latelys buying today aren’t really that “loyal” at all in the scheme of things)

More on this below.

We are also expecting assay results coming from 38 more aircore holes and 6 RC holes that were part of the drill program, testing different areas on the project.

These are also coming any day now.

Anything could happen with that batch of results, even potentially another new discovery.

Beyond those assays, and following the recent capital raise, BPM is already planning its next round of drilling - a 2,500m RC program drilling in and around its discovery hole. That drilling should kick off in the coming months:

(Source)

We Increased our Investment in BPM at the 10c capital raise, and we will take up our loyalty options offer.

With a tiny market cap of $10M and now $3.85M in cash (pro forma after the cap raise), we think strong drill results from these upcoming drill holes could trigger a second run in BPM’s share price.

But we also appreciate that exploration is high risk, and the share price can drop aggressively on results that don’t meet or exceed market expectations.

Our current bet with our BPM Investment is that IF the company makes a large enough gold discovery, THEN $2.2BN Capricorn might show an interest in BPM’s asset.

Capricorn’s Mount Gibson has a ~3.24M ounce gold resource next door to BPM’s discovery. Capricorn is taking this gold asset into development.

IF Capricorn pulls the trigger on developing the project they will have to build all of the project infrastructure anyway.

M&A of existing resources that can be plugged straight into its mine plan (literally next door to operations) would start to make a lot of sense instead of spending cash on much riskier drilling of their own.

This is just speculation on our part, and BPM still needs to actually drill out their new discovery and delineate an economically extractable gold deposit, and there is always a risk that BPM won’t achieve this.

Capricorn will likely also be fully focussed on getting the Mt Gibson mine up and running with its existing ounces for the next few years as well.

Loyalty Options Offer for BPM shareholders

Yesterday, BPM announced a “loyalty options entitlement offer”.

Full details in the Prospectus here - note that this is an important document and investors should read it entirely before participating in the offer - if you have questions, seek professional investment advice.

Anyone who holds BPM shares on the record date of October 14th can participate in the offer.

The offer is for 1 option for every 4 BPM shares held, and the options have a strike price of 15c.

The options need to be purchased for $0.005 per option - so it's an “almost” free option for anyone who is a BPM shareholder.

While the loyalty offer is designed to reward long term BPM shareholders, the date that records “who is a BPM shareholder” is Monday 14th October.

This means anyone who buys BPM shares today - at the latest - will also qualify for the BPM loyalty option.

(today is the last day to buy because of the “T + 2” days settlement time on the ASX)

Despite their lack of “loyalty” as a long term BPM shareholder, new BPM shareholders can still enjoy the loyalty reward if shares are purchased today.

(and on the flipside, anyone who sells today will not qualify, even if you were a long term BPM holder)

As mentioned above, we recently Increased our Investment in BPM and will be taking up our full entitlement of loyalty options.

Here are the key offer terms:

So what is an “option” anyway?

If you have been investing for a while, you can probably skip this section, but for those new to the market, this might be interesting.

An option is a right to purchase a share in a particular company at a predetermined “exercise price” for a period of time.

But the “exercise price” is more than the “current price”, why would we not just buy the shares?

Let us explain...

An investment like this, where someone purchases out-of-the-money options, is effectively a purchase of “time value”.

It’s effectively a cheaper “bet” that BPM’s share price will go up beyond 15c over time (without needing to pay the full price for the shares right now).

BPM’s loyalty options have a two year expiry, meaning we will get two years of time value for BPM to deliver a re-rate beyond the 15c exercise price.

We are basically betting that BPM can deliver news that re-rates its share price beyond 15.05c (15c exercise price + 0.5c for the cost of the option) at some point in the next two years.

Given BPM’s current market cap is only ~$10M, it has a fairly tight capital structure AND it has some exploration catalysts ahead, we think there is a good chance that in the future, BPM’s share price could be multiples of what it is today...

(Provided the exploration gods look favourably on BPM drilling. There is definitely no guarantee the BPM share price will go up - this is high risk exploration Investing).

If the share price were to hit 20 or 30c, then the options allow holders to buy BPM shares for 15c.

Our view is that BPM is currently in a position where certain newsflow could multiply its share price relatively quickly.

And of course if results don’t go their way, the share price will go down.

As we mentioned above, BPM just made a gold discovery at its project in WA - next door to $2.2BN Capricorn Metals - and currently has assays pending from drill holes looking to extend that discovery.

IF those holes, OR future planned drilling later this year comes in, we think the options could pay off.

This is exploration though, anything can happen and there is always a chance that the drilling doesn't deliver, in which case the opposite would happen...

Ultimately, we are hoping that BPM extends its discovery and drilling success helps the company achieve our Big Bet which is as follows:

Our BPM Big Bet:

“BPM will return 10x by making a discovery and defining a deposit significant enough to move into development studies.

NOTE: our “Big Bet” is what we HOPE the ultimate success scenario looks like for this particular Investment over the long term (3+ years). There is a lot of work to be done, many risks involved - just some of which we list in our BPM Investment memo. Success will require a significant amount of luck. There is no guarantee that our Big Bet will ever come true.

What is next for BPM?

There are some key pieces of news that we are looking forward to from BPM including:

• More RC and Aircore drilling results from this second drill campaign (October) - this will be the next major catalyst for BPM. If the drilling delivers, then we would expect the momentum in BPM’s share price to continue.
• Approvals for Phase 3 drilling (November)
• Starting Phase 3 drilling (December)

We are also keeping an eye on the market close today, as today is the last day investors can buy BPM shares and also be entitled to the loyalty options offer.

What are the risks?

In the short term, the key risk for our BPM Investment is “Exploration Risk”.

BPM’s share price is up by over 100% off the back of the gold discovery at its Claw project from a few weeks ago.

That means the market has slowly started to price in positive drill results from that discovery.

The higher BPM’s share price goes leading up to the next batch of results, the higher the expectations will be set for the assay results.

There is always a chance BPM fails to match those expectations in which case we would expect BPM’s share price to re-rate lower.

Exploration risk is just one of the risks we mention as part of our BPM Investment Memo.

To see more risks check out our Memo here.

Our BPM Investment Memo

In our BPM Investment Memo, you can find:

• BPM’s macro thematic
• Why we Invested in BPM
• Our BPM “Big Bet” - what we think the upside Investment case for BPM is
• The key objectives we want to see BPM achieve
• The key risks to our Investment thesis
• Our Investment Plan