Ascot Mining (PLUS: ASMP; XETRA: AM3.DE ).
As my third junior producer pick, in the last report I
threw in a bit of a curve ball, Ascot Mining. It’s a tiny
little producer that I doubt you will find tipped anywhere
else. With a tiny market cap of about £5.7m, Ascot has
lots of potential. Its plan was to become a 100,000-a-year
producer within five years, at cash costs of below $400 an
ounce. At $1,150 gold, that’s an annual profit before tax of
more than $75m.
You can see why Ascot is another potential multi-bagger.
But this company ran into serious problems. It may be,
however, that it is through the worst of them.
First let me tell you about the company. Ascot is operating
in Costa Rica. The Central American isthmus is famously
rich in gold and silver, though for various reasons Costa
Rica has escaped the attention of the larger miners. It’s
politically stable and has been since the 1800s. Land
ownership is widespread. Labour costs are moderate.
Literacy - at 96% - is high.
David Jackson, the chief executive, is based out here. The
management team owns just under 40% of the company,
which I like to see. It means that when the managers act,
they do so in the best interests of shareholders, not just their
own salaries.
Rather than focus on one large project, the company is
bringing a number of smaller mines into production. All
mines are located within three hours’ drive of San Jose, the
capital city. Three gold mines and two mills were already
fully permitted.
Here’s where the problems started. The company had
struck a deal for the La Toyota mine. It would rebuild it
and get it back into production in exchange for a 50%
stake. The mine was to produce 50-60,000 ounces per year
(thus 25-30,000 ounces to Ascot, almost a third of their
targeted 100,000 per year production) at under $400 per
ounce. Ascot put all its efforts, capital and manpower into
rebuilding Toyota, which it did double quickly. Start up was
set for early December 2009.
But, just before start up, in an apparent fit of insanity,
the company’s partner locked the gates to the mine and
wouldn’t let Ascot in. It seems he was trying to take control
of the whole project himself, but he has since been unable
to work the mine. The next stage was the inevitable legal
dispute, which is now in progress. Every ruling so far has
been in Ascot’s favour, but this may be a lengthy process.
With the focus all on La Toyota, Ascot’s other main project,
the Chassoul mine, was now behind schedule. Ascot
needed capital – the plan had been for Toyota’s profits to
get Chassoul going - but Jackson was reluctant to raise
money at too low a price, because he didn’t want to dilute
the stock. However, putting a mine into production is an
expensive business. So what has changed that makes me
now positive about this company?
The Chassoul mine is now all but fully built. The mill
is turning. Chassoul currently has a minimal amount of
production, processing low grade ore. (The group is saving
the higher-grade stuff for when everything is in place). With
its current ball mill, it can only process about 30 tonnes of
ore. A new ball mill is already on site and is being put in
place. That means processing capacity will then increase
fourfold, to some 150 tonnes per day.
Once the new ball mill is operational, and Ascot has
optimized the other areas of the operation, it can start
processing its higher grade ore and ramping up production.
The group will also be trucking ore from two other mines
nearby. Ascot is now targeting an equivalent of 1,200
ounces of production per month by the winter.
I have visited the mines myself and looked at the operations.
These are not unreasonable targets. Suddenly, the company
will have some cash flow – as much as a million dollars per
month - and the immediate pressure will be off. Looking
even at just 1,000 ounces per month – or 12,000 per year,
at $1,000 – will mean around $6m of cashflow, equivalent
to almost half the company’s entire market cap.
Another problem that Ascot has had is Plus, the exchange
on which it is listed in the UK. The stock is not liquid
at all. The market maker system means that the spread
between the buy and sell price can be as much as 15% of
the company’s value – so you need the share price to rise by
15% to break even. This encourages illiquidity.
The shares do however trade robustly on the Dax Xetra,
under symbol AM3. And Jackson is also planning to take
Ascot off Plus and list in Canada. Press releases from
the company indicate that discussions and preliminary
negotiations have taken place. Ascot will be on a
transparent, liquid market in a jurisdiction which has an
appetite for and an understanding of resource stocks. The
Canadians will like this company, I am sure, and, hopefully,
give it a proper valuation.
I own this stock and am underwater with it, but I am
holding on. Funding has been and remains a major issue,
but a Canadian listing, some production at Chassoul, and
some more favourable rulings on Toyota, could all mean
the turn will soon come for Ascot.
Quelle: A MONEYWEEK SPECIAL INVESTMENT REPORT
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