TORONTO (ResourceInvestor.com) -- We last featured Bonaventure Enterprises Inc. [TSX-V:BVT] in early November as the company was working to complete their financing in a very ugly market (for more background see also initial August article).
At the time the stock had seesawed up to almost 80 Canadian cents and then come back off with the general market and because it was taking more time than anticipated to close the project plan.
The good news is that the financing is now closed and the company took in about C$11.5 million dollars, plus has captured more cash from warrants that have been exercised from two previous financings.
That means that Bonaventure does not need to return to the market and is now ready, as per its press release this morning, to test its monstrous targets properly (and with enough drilling to infer 43-101 compliant resources), which is the reason that investors became excited about and bought into BVT in the first place.
Exploration Business
Sadly part of the problem is that many investors do not realize that exploration is not a business. Exploration is an educated guess. Big targets, large drill programs and seasoned jockeys with specific area knowledge help stack the odds in ones favour.
BVT has all of these. But investors over the last couple of months unfamiliar with exploration and the fact that patience is indeed a virtue, and totally forgetting why they had bought Bonaventure in the first place (to see if the K9 property is as big as it looks), decided to sell shares, gripped by fear as the share price was moving lower.
One does not buy an explorer to await the results of a drill program and then sell before the program has even started because the stock is going down. That is completely nonsensical because in this business model the bet is on a high reward exit strategy directly resulting from success at the project.
Shawinigan Handshake
What the perpetual fright of the unknowing and the lemmings has created is a dramatic opportunity for new entrants at this point.
Jean Lafleur, President of BVT, has a stated goal of “going for the throat” on K9 - and that is exactly what he is doing.
K9’s 20,000 metres of drilling and more than 150 holes starting sometime in February is a huge exploration program and will provide all of the data necessary to prove a 43-101 compliant resource. Let’s review the numbers.
K9
The 100% owned 161.5-square kilometre K9 in the James Bay mining district of Quebec has all of the earmarks of a Rossing style deposit - potentially bigger based on surface anomalies.
The volumetrics at the property suggest a monster target if grades continue to depth (even just from surface down to 100 metres).
Here is the math:
7,000 metre long anomalous uranium corridor * 750 metres width * 100 metres depth * 2.7 Specific Gravity = 1,417,500,000 billion tonnes of rock.
Bonaventure is collecting average surface grades of 3 pounds of uranium per tonne. This gives 1,417,500,000 billion tonnes * 3 pounds/tonne = 4,252,500,000 pounds of uranium.
Now we cut the grade in one-third to reflect grades closer to Rossing style as the 3-D volumetrics of the deposit become known. This gives us 1 pound/tonne and 4,252,500,000 pounds / 3 = 1,417,500,000 pounds of uranium at K9.
This is a huge number and only works if mineralization continues down from surface. There is no reason geologically to believe that it does not. But to what extent? Over the whole distance? Or just part of the mineralized surface anomaly area?
If one risk-adjusts the number by 90% discounting for things like a grade half as high, uranium only down to 50 metres, and uranium over just a fraction of the total area, one gets 10% of 1.4 billion pounds of uranium, or roughly speaking about 140 million pounds of uranium at K9.
Were this to transpire, Bonaventure would be sitting on the biggest uranium resource of any listed junior in Canada to our knowledge - surpassing Aurora [TSX:AXU] with about 100 million pounds and a market capitalization of more than C$1 billion.
So how does Bonaventure look from a valuation standpoint? And how long would it take to drill this up to the 43-101 compliant stage?
Valuation
With Bonaventure’s financing and property acquisitions now completed, the company has about 120 million shares outstanding. So at our 90% risk-adjusted number of 140 million pounds of uranium at K9, BVT would have 1.15 pounds of uranium for every outstanding share.
If K9 comes up with what it looks like it could have, Bonaventure’s closest comparable would be Aurora, which currently trades at roughly $10 of market capitalization per 43-101 pound of uranium in the ground.
This suggests a share price north of C$10 for BVT, not including any of the company’s other assets which in themselves are lesser lotteries tickets but still significant and provide important downside protection if K9 should not work for whatever reason.
Conclusion
With the drills beginning to turn next month and the potential reward from this huge drilling program, Bonaventure is now positioned as possibly the top junior lottery ticket of 2008 given the risk/reward ratio here. And because so many holes are being drilled the risk adjustments that we make above should in reality be much lower. They are not trying to find the system with a few well placed holes - they are attacking it!
Whatever the market does now is irrelevant because the company now has the cash to complete the drilling, and if it is successful the results will speak for themselves. We suspect however that strength will begin to rebuild as speculation enters this story in anticipation of the windfall (30 bagger at AXU valuation) if Jean Lafleur is right, and in recognition of the minimal downside because of other projects and current share price (30%?) if Lafleur is wrong.
That is a lottery ticket that I want to own.
The author is long Bonaventure Enterprises, in accordance with the conflict and disclosure policy.
