Transcript: Bonterra Resources (BTR) - Higher Grade Underground Gold is Focus

Bonterra Resources Inc. is a Canadian gold exploration company, with a large portfolio of exploration projects in Quebec, Canada. The asset portfolio of the company holds the Barry, Gladiator, Moroy and Bachelor deposits, as well as the only permitted and operational gold mill in the region, namely the Bachelor Mill. The Barry open-pit project, which is the focus of the company’s advancement initiatives, holds 148 Koz of gold in the measured category, 17 Koz of gold in the indicated category and 1 Koz in the inferred category. 

The company currently has two drill rigs active at the Barry project, with 6,000 m of drilling being conducted a month. The exploration drilling initiatives at the project are focused on the upper 300 m of mineralisation in the project’s underground resources and are aimed at better understanding the continuity and grade of the deposit. The exploration drilling program is planned to consist of 125,000 m of infill drilling and is focused on the highest-grade area of the deposit. Bonterra Resources Inc. at the end of 2022 released assay results from its exploration drilling initiatives at the Barry underground deposit, with the highlights thereof including 21.9 g/t of gold over 4.4 m which included 158.5 g/t over 0.5 m as well as 8.1 g/t over 4.0 m including an interval of 44.5 g/t of gold over 0.7 m. 

Bonterra Resources Inc. aims to complete a mineral resource update in the coming year, which will enable the company to complete and publish a preliminary economic assessment (PEA) of the project in 2023. The PEA will include selecting the best mining method to follow at the project ensuring an optimised operation. 

We Discuss:

0:23 - Recap of the company’s crucial moments in 2022

4:41 - Expectations from the Barry underground project

7:14 - Optionality of the company on their focus going forward

11:32 - Next steps for the company

12:46 - Characteristics of the zones at the Barry underground project

14:18 - Overview of the drill plan at Barry underground project

17:56 - Focus on the company’s drilling campaign

21:58 - Outro

Marc-Andre Pelletier: Good afternoon. My name is Marc-Andre Pelletier. I'm President and CEO of Bonterra Resources Limited.

Matthew Gordon: Marc-Andre, good to see you. Happy new year to you, sir. I wanted to catch up because it's always nice to lay out plans for the year ahead, but also to look back at last year. It was a difficult year for a lot of mining and equity companies, gold in particular; that disconnect between commodities price and equities price. What were the things that you did last year, what were the decisions that you made that you think are important for you this year?

Marc-Andre Pelletier: Good question, Matthew. Happy new year by the way. I joined Bonterra on January 17th 2022, so it's been almost a year now in the big seat. It's been a very challenging year, like you said, but also very busy for Bonterra. One of the first things I wanted to do was to put the right strategy in place with new management to make sure that the company had the right strategy and basically would do what we said we're going to do. That's the first thing I did with the board, looking at our assets.

As you know, we have very large resources - 3Moz, all in Quebec. We also have infrastructure, so we have large deposits, we have infrastructure such as a mill, so what do we do next? It became very clear that the Barry deposit was the asset to move forward towards a production restart. Following that we initiated a PEA on the Barry open pit project. That was published in June. It was fairly positive, a very small-scale project but positive and looking good. 

At Bonterra, we employ the bootstrap approach: we start small and grow the business, and we thought that the Barry open pit was the right project to start with. The PEA showed that it was a good project to move on and we made the decision to pursue the pre-feasibility study in the second half of the year. One of the things we noticed during that process was a significant increase in the cost of contractors, labour and supplies, and that negatively impacted the economics of the project. Even during the time between the PEA and the PFS, which was only about 6 months of work, the inflation, the pressure on the market meant that the costs significantly changed during a very short period of time. As a result, one of the things we decided to do was to put a hold on the PFS on the Barry open pit. In the meantime, we started an infill drilling program in August for the underground portion of the deposit. We made the decision to pause the PFS on the Barry open pit and continue the infill drilling program for the Barry underground deposit. 

Another thing that we've done is the technical review of the Bachelor mine, and we did it internally. One thing we realized is that we did not have enough reserves there to support the restart of the Bachelor mine itself. That resulted in a cost-saving initiative, which was to shut down the underground infrastructure at the Bachelor mine. It was a big decision to make, but in the end, we believe we're going to save about CAD$3M/year, which is a significant amount of money for a company like Bonterra.

Matthew Gordon: We talked about that decision at Bachelor the last time we spoke back in September. Understood - it saves money. It makes sense but help me out with the PFS bit here. The PEA was good. Obviously, we saw these inflationary pressures across the market. Most companies who were putting out economic studies during the second half of last year got absolutely hammered for it because it showed the real cost of doing business at that time. Now some of those costs are starting to recede - you can tell me if you think that's the case, but it's got a long way to go yet. Perhaps the delay to the PFS and the focus on the infill drilling on the underground component is the right thing to do, but what are you looking for underground? Is the grade the same as with the open pit or have you got a slightly higher grade going on there?

Marc-Andre Pelletier: With the underground, we expect to get about twice higher the grade from there, that would benefit the production restart at Barry. We're not sure yet if it's going to be a bit of open pit at the start and then as the underground ramp-up increases production from the underground, but from a project perspective, higher grade from the underground will definitively benefit the economics of the project. We had a strategy to restart production as quickly as possible. That was my mandate, and that's the reason why we focused on the open pit. The mining lease is in place, there has been some previous mining there. It makes sense to start with the pit. We knew the underground would take a bit more time. That's why we focused first on the open pit. Since we advanced the PFS, we realized that we're going to need higher-grade ore to pay off some of our capital project, and that's the reason why we just started this big infill drilling program. We are talking about 125,000m of drilling. We did about 25,000m last year. This year we're going to do 60,000mt-80,000m, depending on how that goes. As you can see, we're moving towards underground at Barry.

Matthew Gordon: I want to help people listening to this understand that: you are saying that the open pit grade is not good enough to deal with the higher CapEx that this inflationary environment has caused. You're going to need to get higher grade. You can go and get that underground, you're saying, because it is twice the grade. Do you then solely go for the underground component and leave the open pit? Or do you blend the two? I know you haven't got an economic study on this thing yet, but you guys know what it costs to mine underground in the region. There are a lot of mines around you, you've got a really good sense of whether it would work or not. In that context, do you know which option you are veering towards?

Marc-Andre Pelletier: One thing. I would like to mention is that only 10% of the resource at Barry is actually open pit. 90% of the bulk of the resources are underground, and we're talking about 1.2Moz, so you see the scale. The pit is the first cake in the can, and it's a small can, it's 150,000oz. The bigger can is the underground - 1.2Moz. Now, you're right in that the cost of mining underground is higher, but the cost for those capital projects, like the mill extension and the tailings management, those costs are going to remain the same, so we're going to improve the margin by mining higher-grade ore from the underground. In addition, in terms of the life of mine, the Barry open pit was a little over 4 years, and for the underground, what we're looking at at the moment, it's only the first half of the deposit underground, which is about 300m deep, so we are talking about 200,000oz-300,000oz to mine there. From a life of mine perspective, that adds 5-8 years, so the life of mine of the project will help the economics.

Matthew Gordon: Again, if you look at bankers and the guys who are going to finance the CapEx, they're going to be looking for at least 10 years life of mine plus; that's going to make them feel comfortable. There has got to be a plan that says: we can get there. This infill drilling is giving us a bit more certainty about the underground component and the grade for sure, but bankers are going to want to see how many total ounces there are, what is the cost of those ounces? If you are saying, the PEA open pit is only 10% of the resource, maybe that PEA is null and void now. Maybe we need to do a PEA on the underground component, and again, that's going to stretch the timeframe for this thing out. The market needs to understand when you get to the point where you make a decision on how you move forward, or is this you now telling us that actually, you already know the underground component is the solution here?

Marc-Andre Pelletier: We don't know yet. We are doing the infill drilling program. If you look at our last couple of releases, we did get some really good interceptions. We actually intercepted the highest-grade intercepts at Barry, at 333g/t over 0.5m - there is definitively gold there. What we would like to do is continue that drilling until at least mid-year this year and then we can assess the next step. Logically, that would be a mineral resource estimate update followed by a PEA, that's the logic we are going to proceed with, however we're not ready yet to make that decision. 

You talked about the bankers and the ounces; we don't believe we need to define the entire deposit before we can start production. Many mines are started like that: they keep finding ore at depth and keep adding life of mine, so that's really our approach there.

Matthew Gordon: I understand that. Lots of companies, lots of producers have come on here who have got a life of mine of less than 5 years, but they've had a life of mine for less than 5 years for 20 years - they just keep going, they keep finding stuff. There's nothing wrong with that. It's just understanding that that is the model. The other part you just mentioned is about getting into economic positive cashflow; that is what you want to focus on. For the first 6 months you will continue drilling and see what you're getting on the underground component, then potentially a PEA on that model to define the economics. Is that what I heard?

Marc-Andre Pelletier: All the work we've done on the Barry open pit PFS is not lost. We did get some really good data and good engineering on some of the major capital expenses, the tailings management area, so that information would be very useful. It's not lost, it wasn't a waste of money. We're just taking a pause but we continue to add weight to the project.

Matthew Gordon: You have told us the size of the drill plan that you're going for here. As you said, 330g/t, albeit over just 1.5m, and 158g/t over 0.5m, and 22g/t over 4.5m. You are finding this high-grade veining. Clearly, underground is different from open pit, but is also the style of the ore body different, or is that what you were seeing with the open pit too?

Marc-Andre Pelletier: It's a good question. What we see as we're getting deeper is that we have many types of zones, the H series, which are the flatter ore lenses at about 30 degrees, we see them more as we get deeper. They contain a lot of gold, they are high grade, but they are narrow. We need to improve our understanding of these zones. We need to see if they are more continuous, the continuity is very important, the grade continuity. However, in the upper half of the deposit, there are about 40% vertical lenses, and maybe 60% of shallow or dipper zones, and as we get deeper the 60% shallow zones go to probably 80%, so they lower more as we get deeper.

Matthew Gordon: It's interesting; I'd love for you to come on and show us what you're seeing there. Clearly, with chasing narrow veins, there's a lot of dilution involved in that, especially at depth: it's going to get harder and more expensive. How close are these lenses and these shallow dipping zones that you're seeing? Are you getting the sense that this is mineable economically? Again, I know you haven't done a study but you've been around the block and you've built a few mines. I'm interested in what your initial feeling is around what you've got and, therefore, how you drill? That drill plan, that drill model is really important to how you spend your money. What are you seeing?

Marc-Andre Pelletier: One of the really good things about Barry is that we're very close to surface. It's not a very deep ore body. The total resource is 600m deep. Where we are specifically looking is from 0m down to 300m, so it's very shallow, close to the surface, so productivity should be good in terms of hauling and those kinds of things. You are correct about dilution. Dilution is actually our enemy, so good mining practices is something that we have been looking at last year and we're going to continue to look at that. At the same time as we are doing the definition drilling, we're looking at the mining aspect.

As you know, mining is my background. It's something I really enjoy doing. We're working a bit ahead but we know that it's going to come. We're looking at more conventional mining methods like cut and fill, so very specific, developed through the ore, you fill and then you go to the next part. Those kind of mining methods reduce dilution, however, they are typically more expensive because they're not bulk mining. It's more selective mining. To be honest, we have got to do the work but we've got to do it right. Some of the costs that we get from the PFS will be used, but there are some specific costs, especially for the selective mining, that need to be looked at. We are working on that, we are getting prepared, once we get ready for a PEA, we will have a good handle on that. It's technical work. It has to be done right because the economics of the project depends on those assumptions that we're going to make on, for example, dilution, mining methods, cost per ton. Those costs are going to be very important. Again, in this very particular environment, with inflation, high pressure on cost, there's no room for mistakes, especially for a company like Bonterra.

Last year we took the responsible approach by putting in a hole. That was the right thing to do for the company, and we want to make sure that for the next step we're going to do it right.

Matthew Gordon: Tell me this: you've got USD$7M-$8M left in the kitty, so in a very meaningful way, if the market continues to be slow, you could choose at what speed you allocate that capital. You've got a couple of rigs turning on the underground component. Can you hone in on precisely what you're chasing at the moment, where you're going to see the most success and the speed at which you spend the money. You've talked about a 6,000m/month level, but has the thinking evolved?

Marc-Andre Pelletier: Our drilling campaign is actually focused on the highest-grade area of the deposit, so we're not doing systematic draining. We are drilling where we think we're going to get positive cashflow mining. That's our main focus. We did get some really good high-grade hits, we need to confirm those hits because they carry a lot of ounces, and from a mining perspective, you want to make sure that your resources are going to be right. 

We're being very selective with the drilling. We have implemented many cost saving initiatives. Even late last year we did more: we made the decision to combine the two mining camps, Gladiator and Barry, together as one camp. Some of those fixed costs just carry on, so we are very sharp on the money. We're not wasting our money, that is very important, especially these days, and we intend to spend the money in the most efficient way possible.

Matthew Gordon: I just wanted a quick catch up with you. It's clear that we're going to see a lot of drilling results coming out over the next 6 months or so. That's the focus, and we'll hopefully see more of what we saw in December from you. Then there will be a decision as to how you move forward. You're going to need to raise capital at some point, presumably at the end of Q1/Q2, to keep that pace going. Stay in touch. Let us know how you're getting on. I like the honesty in terms of how the strategy evolves as the data changes and so does your decision-making. I have no problem with that. Good luck with the drilling. We'll see you soon, and maybe you can come on and get a little bit technical with us with regards to the drill modelling, etc. I'd really like to see that.

Marc-Andre Pelletier: As a takeaway, Matthew, we have the right team, we are in the right ground - the Abitibi Greenstone belt. We have 3Moz. Just nearby is Osisko mining. They just published a feasibility study. This is a power line being built as we speak that will have a positive impact on our project. It's something that we will consider. It costs a lot of money, but hydro is much cheaper than diesel. And don't forget the ESG perspective as well. There is something happening in this camp as we speak. We are doing what we have to do to develop our project and I think the end is going to be very positive. We have the right strategy. It's like a puzzle, I think it's going to make a nice puzzle. We're going to work on it in 2023 for sure.

To find out more, go to the Bonterra Resources website

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