More Broker notes18 Jul 2011 09:33
Primus Inter Pares. Plus listed Ascot Mining at 42.5p giving a fully diluted market capitalisation of c£32 million. This company was effectively bailed out in a placing spearheaded by your Gold Fund two months ago, raising c$5 million at 20p which secured its full ownership of its flagship Chassoul asset in Costa Rica. We have sold a few shares since then ( as the FSA thinks we have too much Ascot exposure in the Gold Fund as a result of its shares going up - yes, I know, go figure) but still c20% of this company is owned by t1ps Funds and Athol Gold ( see below) - our sales have been piecemeal. We will probably sell a few more but the aim is to keep as many shares as we can as this stock is heading to 200p. As things stand, on a fully diluted basis, Ascot has c£3 million of cash. Output should have been c500 oz in December ( all Chassoul) but should ramp up to 1500 oz pcm ( 780% Chassoul, 20% Boston) by March. Thereafter as 3 other small mines come onstream I expect output to hit 3,000 oz pcm by June. Plausibly that could hit 4,000 oz thanks to upgrades at Chassoul or 7,000 oz pcm if a court case regarding the La Toyota mine ( all rounds won so far) goes Ascot's way. Cash costs are c$425 oz.
So we have base case annualised cashflow of c$36 million ( call it £24 million) by June but potentially that could be £56 million. The company should also have moved to AIM by April. And on a multiple of, say, 5 we are thus looking at a market cap of £123 million (base case + cash) to £283 million (upside plus cash) which works out at 154p-354p. Ascot needed bailing out in a hurry so we secured a cracking deal for Fund holders. The best is yet to come. Ascot really is my top resources nap for 2011.
Ascot remains my top pick in gold and silver. Its shares are now 40.5p so we are marginally down. But far from out. The company has not delivered operationally or in terms of a move to AIM as promised. It is three months behind schedule. But it is now pouring gold from Chassoul and the move to AIM is in its final stages. We are almost there. The AIM move will prompt some sort of re-rating but it is the ramp up in output and cashflow generation that is critical. By the end of the summer output will be 1,500 oz pcm ( free cashflow of £1m pcm) and we will also have a 1-1.5m oz JORC resource at Tros Hermanos well underway to definition. That gibes a sum of the parts valuation of at least 150p. I still sense that things at La Toyota are heading the right way and that would add at least 100p per share to the valuation if Ascot prevails. This remains a slam dunk buy.
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