into a Gold Producer · Data Source: Company In November 2018, the company closed a $21.82 million...

Siddharth Rajeev, B.Tech, MBA, CFA

November 26, 2018

2018 Fundamental Research Corp. “15+ Years of Bringing Undiscovered Investment Opportunities to the Forefront” www.researchfrc.com

PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT

Bonterra Resources Inc. (TSXV: BTR / OTCQX: BONXF / FSE: 9BR1) – Acquires Metanor and Turns

into a Gold Producer

Sector/Industry: Junior Resource www.bonterraresources.com

Market Data (as of November 26, 2018)

Current Price C$2.95

Fair Value C$5.96

Rating* BUY

Risk* 4

52 Week Range C$2.85 - C$6.40

Shares O/S 45.98 M

Market Cap C$135.64 M

Current Yield N/A

P/E (forward) N/A

P/B 3.2x

YoY Return -48.2%

YoY TSXV -25.0% *see back of report for rating and risk definitions. * All figures in C$ unless otherwise specified.

Highlights

In September 2018, Bonterra Resources Inc. (“Bonterra”, “BTR”, “company”) acquired a gold producer, Metanor Resources Inc., in an all-share transaction valuing Metanor’s shares at $74 million.

Metanor’s key assets included the producing Bachelor mine, and its Urban Barry mill, and two advanced stage exploration assets.

With this acquisition, BTR holds one of the largest land

packages in the Urban Barry gold camp. We believe the acquisition is highly accretive as Metanor's mill infrastructure provides BTR the opportunity to quickly advance its Gladiator project to production at a significantly low CAPEX.

BTR also spun out its Larder Lake property, and approximately $7 million cash, into a newly formed, Gatling Exploration Inc (TSXV: GTR). Shareholders of BTR received one Gatling share for seven common shares of BTR held.

Management’s target is to build a portfolio with an

annual production potential of 190 Koz by 2020, with a

total investment of $55 million.

The company completed a 10:1 share consolidation in November. Subsequently, BTR closed a $21.82 million financing by issuing 3.44 million flow-through shares at $3.80 per share, and 2.65 million common shares at $3.30 per share.



Acquires

Metanor

Spin-off to

Gatling

Exploration

Agreement with

Beaufield

In September 2018, the company completed the acquisition/merger of TSXV listed gold producer, Metanor Resources Inc., in an all-share transaction. Each share of Metanor was exchanged for 1.6039 shares of BTR, resulting in a total issuance of 163.51 million share of BTR at $0.46 per share, valuing the deal at approximately $74 million. Metanor shareholders received a 40% premium on the 30-day volume weighted average price. Upon completion of the transaction, Bonterra and Metanor shareholders owned approximately 58% and 42%, respectively, of the consolidated company. All of BTR’s senior management retained their positions. Metanor’s Chairman and CEO, Greg Gibson, was appointed as the Chairman of BTR. Christina Ouellette (board member of Metanor) joined BTR’s board.

Concurrently, BTR announced its plan to spin out its Larder Lake property, and approximately $7 million cash, into a newly formed Gatling Exploration Inc (TSXV: GTR). Shareholders of BTR received one Gatling share for seven common shares of BTR held, resulting in an issuance of 33.43 million shares. Gatling shares started trading on the TSXV on October 11, 2018.

The company also entered into an option agreement with Beaufield Resources Inc. (TSX-V: BFD) to acquire a 70% interest in the Duke property – which includes 81 contiguous mineral claims totaling 3,590 hectares in the Urban Barry Greenstone belt. BTR can earn a 70% interest by issuing 4 million shares (issued) and cash payments totaling $0.75 million over three years ($0.25 million paid), and incurring $4.50 million in exploration expenditures over three years. The property is subject to a 2.3% NSR, of which, 1% can be purchased for $1 million. The property is adjacent to the northern boundaries of BTR’s Gladiator deposit, and shares a similar geology.

Location of the Duke Property

Source: Company



Asset Portfolio

BTR’s current portfolio is shown below.

Project Portfolio

Source: Company

With the acquisition of Metanor and the potential transaction with Beaufield, BTR will

have one of the largest land package in the Urban Barry gold camp. The Urban-Barry Greenstone Belt is part of the world-famous Abitibi Greenstone Belt. In addition to BTR, Osisko Mining Inc. (TSX: OSK) is a major player in the region.

Metanor’s key assets included the producing Bachelor mine (which has been in production for over 20 years) and its Urban Barry mill (1,200 tpd / to be expanded to 2,400 tpd), and advanced stage exploration assets; namely, the Moroy and Barry properties. Metanor’s historic financial performance is summarized below.

Metanor’s Historic Financials

Source: Company

Although performance peaked in FY2017 (revenues of $56 million / gross profit of $8



million), revenues dropped significantly in the first six months of 2018 due to ore depletion.

Metanor’s Historic Production

Source: Company

Metanor’s balance sheet, as of June 30, 2018, is summarized below. Working capital, net of long-term debt was -$9.03 million. Adding the acquisition price of Metanor’s equity of $74 million, we estimate the total purchase price of Metanor’s assets was approximately $83 million.

Metanor Balance Sheet

Source: Company

Metanor had been developing its Bachelor and Barry properties to advance them to production. The Barry deposit (developed into a shear zone system) has been identified as having a

strike of 1,300 m and a depth of 600 m. The deposit was historically mined (open-pit) and is permitted. Management believes there is potential for mineralization at depth, as very little drilling has been completed below 600 m. A resource estimate is expected shortly.

The Moroy deposit is a recently discovered deposit at the Bachelor property. There are two parallel mineralized zones that are yet to be quantified. A resource estimate is expected to be completed in the first half of 2019.

The Bachelor and Barry properties are subject to a 3.9% NSR to Sandstorm Gold (TSX: SSL), of which, 2.1% can be purchased for US$2 million for each property. The NSR will kick in after the company delivers its remaining commitment of approximately 9,000 oz of gold, at a price of US$500 per oz, to Sandstorm.



Update on the

Gladiator

Deposit

The Urban Barry mill is the only permitted mill in the region. Therefore, we believe the

acquisition is highly accretive as Metanor's mill infrastructure and provides BTR the

opportunity to quickly advance Gladiator to production at a relatively low CAPEX. After completing 60,000+ m of drilling in 2017, the company has been pursuing a 70,000 m drill campaign (definition and expansion) in 2018. Over 150,000 m of drilling has been completed since the initial resource was completed in 2012. At least six sub-parallel zones (stacked lenses) have been identified to date. The drill program in 2018 has been successful

as infill drill results continue to demonstrate the continuity of the deposit. In addition, the company also discovered mineralization further north (including an intercept of 27.4 g/t Au over 7.0 m) and southwest of the deposit.

Mineralized Zones

Source: Company

Overall, mineralization on the project has now been confirmed over a strike length of 1,300 m (previously 1,200 m) on four zones (North, Footwall, Main and South), and a depth of 1,100 m. The width of veins average between 2 m and 4 m. The deposit remains open in all directions.

Gladiator Deposit - Long Section

Source: Company



Key Plans /

Catalysts

Management expects to complete an updated resource estimate shortly. The 2012 initial resource estimate was based on a strike length of approximately 200 m and depth of approximately 200 m. Therefore, we expect significant upside on the updated resource estimate.

The following tables shows our very preliminary internal resource estimate based on the drilling results announced to date. Our preliminary speculative estimate (unchanged) is 2.1

Moz. Note that we have only accounted for mineralization in the four established zones.

FRC’s Speculative Resource Estimate

Source: FRC

The company is focused on the following key near-term initiatives: Updated resource estimate on the Gladiator Deposit expected by year end. Resource estimate on the Barry deposit expected by year end. Initiate permitting on Gladiator to develop a decline and complete a bulk sampling

program. Expand mill capacity from the existing 1,200 tpd to 2,400 tpd in 2019. The company is

currently in the permitting process. The expansion cost is estimated at US$13 million. Management’s longer-term goal is shown below. They expect a total investment of $55

million to result in a portfolio with an annual production potential of 190 Koz by 2020.

Development Plan / Strategy

Source: Company



Financials

Stock Options

and Warrants

Valuation &

Rating

At the end of Q1-FY2019 (ended August 31, 2018 / prior to the Metanor acquisition), the company had cash and working capital of $10.80 million and $12.75 million, respectively. We estimate the company had a burn rate (cash spent on operating and investing activities) of $4.22 million per month in FY2018. The following table summarizes the company’s liquidity position:

Data Source: Company

In November 2018, the company closed a $21.82 million financing by issuing 3.44 million

flow-through shares at $3.80 per share, and 2.65 million common shares at $3.30 per

share.

We will start reporting our revenue and EPS guidance after the company completes its consolidated Q2-FY2019 statements.

The company currently has 1.92 million options (weighted average exercise price of $5.62 per share) and 4.51 million warrants (weighted average exercise price of $5.20 per share) outstanding. Approximately 0.16 million options and 0.20 million warrants are currently in the money. If exercised, these options and warrants will generate $0.85 million in cash to the company. Our Discounted Cash Flow (DCF) valuation on the company, which we are introducing in this report, is $5.96 per share. Our valuation was based on our preliminary resource estimate on Gladiator, to be processed at a rate of 2,400 tpd for 11 years. For conservatism, we have currently not accounted for any resource from Barry and Moroy. Our previous fair value estimate was $0.75 per share ($7.50 pre-share consolidation).



Source: FRC

The sensitivity of our valuation to key inputs is shown below.

Valuation Sensitivity

Source: FRC



Risks

We are reiterating our BUY rating on BTR, and lowering our risk rating from 5 (Highly

Speculative) to 4 (Speculative). We are lowering our fair value estimate from $7.50 to

$5.96 mainly due to the acquisition and revised estimates. We have not accounted for

any value on the acquired projects’ resources.

We believe the company is exposed to the following key risks (not exhaustive): The value of the company is highly dependent on gold prices. Exploration and development risks. Our internal resource estimate used for valuation on the Gladiator project is significantly

higher than the existing NI 43-101 compliant resource estimate. Share dilution through future financings.



Fundamental Research Corp. Equity Rating Scale:

Buy – Annual expected rate of return exceeds 12% or the expected return is commensurate with risk Hold – Annual expected rate of return is between 5% and 12% Sell – Annual expected rate of return is below 5% or the expected return is not commensurate with risk Suspended or Rating N/A— Coverage and ratings suspended until more information can be obtained from the company regarding recent events. Fundamental Research Corp. Risk Rating Scale:

1 (Low Risk) - The company operates in an industry where it has a strong position (for example a monopoly, high market share etc.) or operates in a regulated industry. The future outlook is stable or positive for the industry. The company generates positive free cash flow and has a history of profitability. The capital structure is conservative with little or no debt. 2 (Below Average Risk) - The company operates in an industry where the fundamentals and outlook are positive. The industry and company are relatively less sensitive to systematic risk than companies with a Risk Rating of 3. The company has a history of profitability and has demonstrated its ability to generate positive free cash flows (though current free cash flow may be negative due to capital investment). The company’s capital structure is conservative with little to modest use of debt. 3 (Average Risk) - The company operates in an industry that has average sensitivity to systematic risk. The industry may be cyclical. Profits and cash flow are sensitive to economic factors although the company has demonstrated its ability to generate positive earnings and cash flow. Debt use is in line with industry averages, and coverage ratios are sufficient. 4 (Speculative) - The company has little or no history of generating earnings or cash flow. Debt use is higher. These companies may be in start-up mode or in a turnaround situation. These companies should be considered speculative. 5 (Highly Speculative) - The company has no history of generating earnings or cash flow. They may operate in a new industry with new, and unproven products. Products may be at the development stage, testing, or seeking regulatory approval. These companies may run into liquidity issues, and may rely on external funding. These stocks are considered highly speculative.

Disclaimers and Disclosure

The opinions expressed in this report are the true opinions of the analyst about this company and industry. Any “forward looking statements” are our best estimates and opinions based upon information that is publicly available and that we believe to be correct, but we have not independently verified with respect to truth or correctness. There is no guarantee that our forecasts will materialize. Actual results will likely vary. The Analyst and FRC do not own shares of the subject company. Fees were paid by BTR to FRC. The purpose of the fee is to subsidize the high costs of research and monitoring. FRC takes steps to ensure independence including setting fees in advance and utilizing analysts who must abide by CFA Institute Code of Ethics and Standards of Professional Conduct. Additionally, analysts may not trade in any security under coverage. Our full editorial control of all research, timing of release of the reports, and release of liability for negative reports are protected contractually. To further ensure independence, BTR has agreed to a minimum coverage term including an initial report and three updates. Coverage cannot be unilaterally terminated. Distribution procedure: our reports are distributed first to our web-based subscribers on the date shown on this report then made available to delayed access users through various other channels for a limited time. The distribution of FRC’s ratings are as follows: BUY (73%), HOLD (7%), SELL / SUSPEND (20%). To subscribe for real-time access to research, visit http://www.researchfrc.com/subscribe.php for subscription options. This report contains "forward looking" statements. Forward-looking statements regarding the Company and/or stock’s performance inherently involve risks and uncertainties that could cause actual results to differ from such forward-looking statements. Factors that would cause or contribute to such differences include, but are not limited to, continued acceptance of the Company's products/services in the marketplace; acceptance in the marketplace of the Company's new product lines/services; competitive factors; new product/service introductions by others; technological changes; dependence on suppliers; systematic market risks and other risks discussed in the Company's periodic report filings, including interim reports, annual reports, and annual information forms filed with the various securities regulators. By making these forward looking statements, Fundamental Research Corp. and the analyst/author of this report undertakes no obligation to update these statements for revisions or changes after the date of this report. A report initiating coverage will most often be updated quarterly while a report issuing a rating may have no further or less frequent updates because the subject company is likely to be in earlier stages where nothing material may occur quarter to quarter. Fundamental Research Corp DOES NOT MAKE ANY WARRANTIES, EXPRESSED OR IMPLIED, AS TO RESULTS TO BE OBTAINED FROM USING THIS INFORMATION AND MAKES NO EXPRESS OR IMPLIED WARRANTIES OR FITNESS FOR A PARTICULAR USE. ANYONE USING THIS REPORT ASSUMES FULL RESPONSIBILITY FOR WHATEVER RESULTS THEY OBTAIN FROM WHATEVER USE THE INFORMATION WAS PUT TO. ALWAYS TALK TO YOUR FINANCIAL ADVISOR BEFORE YOU INVEST. WHETHER A STOCK SHOULD BE INCLUDED IN A PORTFOLIO DEPENDS ON ONE’S RISK TOLERANCE, OBJECTIVES, SITUATION, RETURN ON OTHER ASSETS, ETC. ONLY YOUR INVESTMENT ADVISOR WHO KNOWS YOUR UNIQUE CIRCUMSTANCES CAN MAKE A PROPER RECOMMENDATION AS TO THE MERIT OF ANY PARTICULAR SECURITY FOR INCLUSION IN YOUR PORTFOLIO. This REPORT is solely for informative purposes and is not a solicitation or an offer to buy or sell any security. It is not intended as being a complete description of the company, industry, securities or developments referred to in the material. Any forecasts contained in this report were independently prepared unless otherwise stated, and HAVE NOT BEEN endorsed by the Management of the company which is the subject of this report. Additional information is available upon request. THIS REPORT IS COPYRIGHT. YOU MAY NOT REDISTRIBUTE THIS REPORT WITHOUT OUR PERMISSION. Please give proper credit, including citing Fundamental Research Corp and/or the analyst, when quoting information from this report. The information contained in this report is intended to be viewed only in jurisdictions where it may be legally viewed and is not intended for use by any person or entity in any jurisdiction where such use would be contrary to local regulations or which would require any registration requirement within such jurisdiction.

into a Gold Producer · Data Source: Company In November 2018, the company closed a $21.82 million...

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