Growth Equities & Company Research Ascot Mining Plc Production Ready Gold Miner. Speculative Buy Recommendation Analyst: Thomas Jones thomas.jones@t1ps.com 020 7562 3371
23rd April 2009 Analyst: Thomas Jones thomas.jones@t1ps.com 020 7562 3371 Ascot Mining Plc Production Ready Gold Miner. Speculative Buy Recommendation On the brink of production from its Costa Rican gold projects, Ascot Mining is debt free and expects its cash costs, once it commences production, to be less than $450 per ounce. The company is listed on the London PLUS Market and European Xetra stock exchange as well as having ADR exposure in the US. Ascot has come a long way in a short period of time, having been established in 2007 to develop a number of mining concessions in Costa Rica. While its initial joint venture at La Luz was terminated by the Company after having produced 18 small dore bars, another of the company s early prospects, the 100% owned Chassoul gold mine, is now nearing readiness to produce. The recently announced 50% earn-in agreement on the La Toyota gold concession, together with its other concessions at Tres Hermanos, El Rico and Boston, has the company targeting a net annual production rate of 100,000 ounces within the next 3-5 years. Each of Ascot s gold projects are of the vein system variety, which suffers from the inherent issue of costs prohibiting the definition of an industry compliant resource estimate. The fact that defining such a resource would effectively entail mining the ore means that one should not let the lack of such a value effect one s view of the company. In this respect Ascot currently has around 700,000 ounces of (non industry compliant, but competent person verified) estimated gold resources, but the development of already identified additional gold veins has the company confident of further discoveries. EPIC Share Price Spread Total no of shares Market Cap 12 Month Range Net Cash Market Website Sector Contact Key Data ASMP 29p 27p 31p 29.3 million 8.5 million 29p 52.5p 200,000 (est) PLUS / XETRA www.ascotmining.com Mining Damien Daly, damien@ascotmining.com Ascot s strategy is to acquire previously mined and permitted concessions and, through the use of modern mineral recovery technology, significantly increase the deposit s yield. Obvious benefits to this strategy are that exploration risk is greatly reduced and that it allows the company to build a portfolio of quick to production mining assets. GE&CR believes that gold is likely to appreciate in value sharply during the next two years and as a near term producer Ascot will be a geared play on this and, as such, represents an attractive small cap production ready company. Page 2 of 8
Table based on a Gold price of $850/oz Forecast Table: Year to 30th Sep Sales (US$ million) Pre-tax Profit (US$ million) Earnings Per Share (cents) Price Earnings Ratio Dividends Per Share (cents) Dividend Yield (%) 2007A 0 (0.005) (10.0) NA 0 0.0 2008A 0.1 (0.78) (3.93) NA 0 0.0 2009E 24.5 12.0 40.9 1.07 0 0.0 2010E 29.4 14.6 49.8 0.87 0 0.0 Operations Each of Ascot s projects are located along the central gold belt of Costa Rica, a structure which runs in a wide band from the North West to the very heart of the country. All of the projects are easily accessible from the Pan American Highway and lie within 3 hours drive of the capital - San Jose. Additionally, the workforce is local which contributes experience and stability as well as being a major factor in Ascot s low cost of production. Chassoul Gold Mine 100% owned and fully permitted, the Chassoul gold mine is operated by Ascot s wholly owned subsidiary Veritas Gold CR. The most advanced of the company s mines, Chassoul has an estimated 56,700 ounces of gold in the one explored vein, as well as at least 8 other unexplored veins. While the Mina de Oro property, in which Chassoul is situated, lies around 22 kilometres from the Pan American highway, the resource itself lies between 530-620 metres above sea level in the side of a hill and will be mined via a series of tunnels. Chassoul was previously mined between 1980 and 1995 but, having only ever achieved a maximum recovery rate of 50%, the project was a prime candidate for acquisition having fulfilled Ascot s strategic criteria. While a small amount of funding is required to make Chassoul operational, all other infrastructure is in place to commence production. The early constraint on output will be the processing mill which will initially have a throughput of 50-75 tons per day (tpd), rising to 150 tpd in the near term. Both the crushing facility and tailings dam have been over-engineered to cope with higher throughputs of 300 tpd and 400 tpd respectively. Page 3 of 8
Tres Hermanos / El Recio Gold Mine Wholly owned subsidiary Veritas Mining CR holds the sole 20 year lease rights to both the Tres Hermanos and El Recio concessions. The mine is accessed off the Pan American Highway via a good 7.5 kilometre gravel road, and both concessions have water, power, telephone and full permits in place. Historical mining at Tres Hermanos has extracted 2.2 million tonnes of ore at an average grade of 0.48 oz per tonne. Trial mining by Ascot has so far produced gold recovery rates of over 90%. An independent valuation by BlueMap Geomatics Ltd of British Columbia estimated the combined reserves of Tres Hermanos and El Recio at 825,000 tons at 0.319 ounces per ton for a contained gold content of 263,175 ounces from an underground mine. In addition, El Racio has open pit reserves in the region of 225,507 short tons at 2.74 grams per ton for 22,509 ounces of gold which, thanks to the removal of a moratorium on open pit mining in 2008, is now mineable. A new mill at Tres Hermanos is planned for later this year with the intention of servicing both sites. Assuming finance is secured for the mill, Ascot believes both concessions could be producing by 2010. Toyota Mine Joint Venture Announced on the 6th of April 2009, Ascot s subsidiary Veritas Resources CR signed an agreement with Auro Magra CR SA to earn 50% of the La Toyota gold concession in Costa Rica. Veritas will assume operatorship of the project and invest an estimated $1 million in funding to bring the concession into production and thus earn its 50% interest. Experienced Costa Rican geologist Franz Uulloa is already on site for Veritas and will lead the site s development. Since Uulloa s signing, all roads have been upgraded, much of the mill equipment, including a 150tpd ball mill, is on site, and both the office and laboratory are under construction. An initial mining plan has been developed. La Toyota is close to Ascot s other projects and is easily accessible from each of them. Targeting 4 gold veins around 300 metres apart, the Mining Department of Costa Rica has estimated gold reserves at the Toyota vein alone of 319,770 ounces 666,190 tons at a grade of 0.48 ounces per ton. Production at La Toyota is expected to commence in early 2010 and will form an important part of Ascot s 100,000 ounce per annum gold production target. All permits necessary to take the project into production are in place with the only hurdles being time and funding. Boston Ore Supply Agreement Owned by a syndicate of around 60 local miners, Veritas Mining has a 10 year agreement with these owners to receive the ore they produce. Mining is currently underway by the owners who can expect grades in the region of its historical average gold grade of 0.3-1.0 ounces per ton. While gold output is small, the margin Veritas derives from the arrangement is in line with its other operations. Board of Directors CEO David Jackson. With over 35 years of marketing, senior management and corporate finance experience in both public and private, UK and foreign companies. Mr Jackson has also been involved in the foundation of a number of private and public real estate, technology and resource companies. His international contact list and 5 years of senior officer / director experience with two gold and base metal exploration companies are particularly relevant for Ascot. Executive Director & COO Andrew von Kursell, P.Eng. Mr Von Kursell is well experienced in the initiation, negotiation, planning and management of major projects, as well as with regulator, investor and financial stakeholders. Non-Executive Director Dr Michael Green. Having began his career as a mining analyst in the city of London, Dr Green obtained his PhD in mining engineering, and later went on to become head of research at Everett Financial. He is currently an independent analyst and consultant. Page 4 of 8
SWOT Analysis Strengths Brink of production Ascot has achieved all production permits and is very close to gold production. Leadership team the current management at Ascot is very experienced with complementary commercial, technical and financial backgrounds. Fast moving the speed with which the company has progressed from formation to production readiness is impressive and one that has been achieved under robust financial controls. Weaknesses Lack of industry compliant resource the absence of a large industry compliant resource estimate, admittedly a function of the gold vein systems, means stakeholders have less visibility and assurances as to mineral content. Financial depth while the company is advantaged by the absence of debt, its net cash position is minimal and progress is reliant upon further fund raisings. Although its proximity to production is an advantage, current market conditions are a challenge to most companies. Opportunities Resource upside the absence of an industry compliant resource means Ascot has in all likelihood flown under the radar of many investors. There is real upside from each of the company s prospects, the value of which will only become evident when mined. Production upside the company s annual gold output target of 100,000 ounces is impressive for a small company, and with production expected to come from multiple sources, Ascot has every chance of meeting its goal. Threats Exploration / output risk again the lower confidence surrounding Ascot s resource estimates means there is probably a higher risk that the company can accurately predict its mineral output. Financing risk until the company is cash flow positive, Ascot is reliant on external funding sources. Significant Shareholders Of the 29,301,664 Ascot shares on issue, the following shareholders each control over 3% of the issued capital. Name Shares (#) Percentage (%) David Brian Jackson 6,000,000 20.5% Andrew von Kursell 5,000,000 17.1% In addition there are 1,500,000 out of the money options outstanding. Page 5 of 8
Conclusion Overall gold production net to Ascot is forecast at 28,850 ounces in 2009, 34,630 ounces in 2010 and 50,283 ounces in 2011; while all in cash costs per ounce of gold produced are expected to be $434, $427 and $324 respectively during the same three year period. With gold prices currently at around $900 oz, there is a healthy margin built into Ascot s production. Assuming Ascot produces 20,000 ounces of gold in its financial year to 30th September 2009; at an average margin of $400 per ounce and assuming central admin costs are up slightly on 2008 s accounts at say 1 million, pre-tax profit would come in at around 4 million. With output increases expected over the forthcoming years and with a market cap of 8.5 million, Ascot Mining appears very good value. The company remains cognisant of opportunities in other politically stable countries, and sees copper, silver and gold in Mexico, Brazil, Peru and Canada as potential future fields of investment. However with over $400 million of net gold in the ground, this junior miner has enough to keep itself busy for the next few years. Given GE&CR s house view that gold will appreciate to more than $1200 oz during the next two years, production ready Ascot Mining has clear potential and as such we recommend the stock as a speculative buy. Table based on a Gold price of $850/oz Forecast Table: Year to 30th Sep Sales (US$ million) Pre-tax Profit (US$ million) Earnings Per Share (cents) Price Earnings Ratio Dividends Per Share (cents) Dividend Yield (%) 2007A 0 (0.005) (10.0) NA 0 0.0 2008A 0.1 (0.78) (3.93) NA 0 0.0 2009E 24.5 12.0 40.9 1.07 0 0.0 2010E 29.4 14.6 49.8 0.87 0 0.0 This research note cannot be regarded as impartial as GE&CR has been commissioned to produce it by Ascot Mining The information in this document has been obtained from sources believed to be reliable, but cannot be guaranteed. Growth Equities & Company Research is owned by t1ps.com Ltd which is commissioned by companies to produce research material under the Growth Equities & Company label. However the estimates and content of the reports are, in all cases, those of t1ps.com Ltd not of the companies concerned. t1ps.com Limited is regulated by the Financial Services Authority.This research report is for general guidance only and t1ps.com Ltd cannot assume legal liability for any errors or omissions it might contain. The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not necessarily a guide to future performance. The difference between the buy price and the sell price for smaller company shares can be significant. Before investing, readers should seek professional advice from a Financial Services Authority authorised Stockbroker or Financial Adviser. t1ps.com limited can be contacted at 5-11 Worship Street, London EC2A 2BH - email thomas.jones@t1ps.com - fax 020 7628 3815 - tel 020 7562 3371 Page 6 of 8
Notes Page 7 of 8
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