Morning Guys,
I found this thought exercise interesting and worth sharing. I didn't come up with it, but it makes sense to me:
ASSUMPTION: The key assumption is that BSM have solved their technical issues of (a) water (b) ore grade. I am happy after my site visit that they have. With the completed capital raising (debt + rights issue) they will be fully funded to exploit their exploration upside and gold project.
Given this assumption, if they are successful in the rights issue and the money is effectively put to work added value is reasonable assured (though discovery: VMS and development: Gold). Given this, a 15c entry price with free attaching option will be a very profitable investment.
Counter to this if BSM are unsuccessful in the rights issue they will have to limp along for a period of time with the Fossey cash flows until debt is repaid, at which point they can ramp up the exploration and development budget.
Thus the application:
(1) Participate in the rights issue to the full extent your cash flows allow (including over subscription if possible).
(2) If BSM don't raise the $8m minimum you are given all your application money back.... NO DOWNSIDE RISK
(3) If BSM raise $8m you have bought shares at 15c + free attaching 20c Option in what is now a fully funded Zn and Pb producer with good exploration targets and a gold project with an indicative NPV of $400-500m.... LOTS OF UPSIDE
If you can see a flaw please let me know, but the logic seems sound to me.
Cheers
John
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