The release of a trading statement on the 23rd of August confirmed that PLUS listed gold company Ascot Mining, operating in Costa Rica, is nearing completion of the upgrade to its Chassoul gold mine and mill - which should result in capacity shortly tripling to 150 tonnes of ore per day (tpd).  This upgrade is on only the first of three mines Ascot will be developing in the next few months, with the Tres Hermanos and El Recio projects expected to propel the company towards financial independence and material cash generation. Chassoul's mill expansion, underground stope preparation and further exploration work are progressing well and will go a long way to mitigating the setback suffered as a result of the unforeseen issues experienced with its proposed JV partner at the La Toyota project. That has hit the share price unfairly and we do not see the good news as now being in any way discounted. Our stance, at 15p, is buy with a 62p target.

Expanding the mill at Chassoul has been challenging as a result of the relatively small physical mill site area and this necessitated extensive customisation of the mill and extended construction times. An additional large ball mill has been installed, as has a larger steel fabricated fine ore bin, while two new ore feed conveyors are being fabricated for installation and a new 230KV generator has been purchased.

Underground preparation of stopes to the south of the Cajeta vein has been slowed due to the inflow of rain water, while an earthquake measuring 6.2 on the richter scale has caused some rock displacement and thus caused further delays.  However, the arrival of a larger air compressor will maximise drill efficiency and expedite underground development which will in turn lead to a more consistent feed to the mill and improvements to production economics.

Negra, Pochota and the surface extension of the Cajeta vein are the immediate exploration targets, with surface trenching and detailed surveying expected to identify the location of Negra's new exploration tunnel and the relationship between the Pochota and Cajeta veins.

Work on Ascot's other sites at Tres Hermanos and El Recio have been put on hold temporarily as resources are directed to Chassoul, but with a very short development/production time frame, each site could be trucking ore to the Chassoul mill before the end of the year.  Initially operations would begin at each site before a steady increase to 50 tpd at each of the sites.  The Chassoul tailings pond has the capacity to handle 400 tpd, meaning it will comfortably handle output for the foreseeable future.  A mill is planned for the Tres Hermanos property that will also handle mill feed from El Recio.

With 50tpd expected in early September and 150tpd by the month's end, initial recoveries of 92% and further recoveries to come when two new leach tanks are installed, Chassoul is driving Ascot towards the point where it is generating enough cash to self fund its growth.  The company's Las Juntas operations, which includes their properties at Tres Hermanos and El Recio, should also be in production before the end of this year and thus Ascot could enter 2011 on the brink of a 250 tpd operation and gold production in excess of 2,000 ounces per month.  However, for now Ascot remains reliant on external funding and has a commitment of funding of $4.5 million from private equity company Equita Global which will fund an aggressive rollout. It is also contemplating further forward sales of gold to achieve the same goal.

As a point of reference, Ascot expects to be producing 1,200 ounces of gold per month when Chassoul is processing 150tpd of ore and recovering 92%.  At a price of $1,200 per ounce, Ascot would be generating $1.44 million and $17.3 million in revenue per month and per year respectively and $0.84 million and $10.1 million in operational cashflow per month and per year respectively.  Using an USD/GBP exchange rate of $1.50, this equates to £11.5 million in annual revenue and represents almost twice the company's current £5.9 million market capitalisation. Put another way the market cap to cashflow multiple is just 0.88x which looks far too low. The implication here is that the implied market risk factor appears excessive and that there could be a good buying opportunity.

GE&CR's valuation of Ascot has been revised to incorporate the new timeframes and production expectations with a conservative adjustment to the company's own expectations.  We have used a recovery rate of 90%, operating cost of $500/ounce and that the $4.5 million capital injection from Equita Global arrives in the form of 100% debt repayable over a 4 year period at a rate of 15% per annum.   Most notably we have assumed longer production time frames with Chassoul producing 50tpd in October-November 2010, 100tpd from December 2010 to January 2011 and then 150 tpd from February 2011 onwards and the company's Las Juntas operations (including Tres Hermanos and El Recio), initially  producing at 50 tpd from January-March 2011 and then 100 tpd from April 2011.  After applying a 10% discount rate and dividing by the 39.2 million shares in issue we value Ascot Mining at 62p.  With markets having punished Ascot of late, canny investors could do well by looking at this junior gold company with very near term production.  At 15p the stance is upgraded to buy.

Forecasts table

* Worship Street Investments & the SF t1ps Smaller Companies Gold Fund which are advised by t1ps investment management, which is owned by RSH the ultimate owner of GE&CR, owns shares in Ascot as does RSH itself.

This research note cannot be regarded as impartial as GE&CR has been commissioned to produce it by Ascot Mining Plc*, it should be regarded as a marketing communication.

The information in this document has been obtained from sources believed to be reliable, but cannot be guaranteed. Growth Equity & Company Research is owned by T1ps.com Limited which is commissioned to produce research material under the GE&CR label. However the estimates and content of the reports are, in all cases those of T1ps.com Limited and not of the companies concerned.

This research report is for general guidance only and T1ps.com Limited cannot assume legal liability for any errors or omissions it might contain. Readers of this report should also be aware that because this research is not independent that there is no prohibition on dealing ahead of the dissemination of it.

The value of investments can go down as well as up and you may not get back all of the money you invested; You should also be aware that the past is not necessarily a guide to the future performance. Finally, some of the shares that are written about are smaller company shares and often the market in these shares is not particularly liquid which may result in significant trading spreads and sometimes may lead to difficulties in opening and/or closing positions. Before investing, readers should seek professional advice from a Financial Services Authorised stockbroker or financial adviser.

T1ps.com Limited is authorised and regulated by the Financial Services Authority (FSA Registration no. 192801) and can be contacted at 3rd Floor, 3 London Wall Buildings, London, EC2M 5SY

email philip.morrish@gecr.co.uk - fax 020 7628 3815 tel 0207 562 3362