This is based on the likely path the company will take to near-term cashflow and the expectation of future positive news from progress at its Titiribi Coal project in Colombia.
The following is an extract from the research report:
Ascot Resources has completed a first phase drilling programme at Titiribi
This returned some encouraging coal quality data that indicates coking coal at the project.
Preliminary results indicate that a semi-soft, high volatile coking coal could be mined at Titiribi. The coal is likely to be relatively high in sulphur but exceptionally low in phosphorous; the latter quality is likely to be desirable to customers.
Drilling intersected some 25 coal seams with thicknesses varying from 0.3m to 13m
Coal is reported to show good continuity across the project, with three seams (the thickest at 5m) likely to form the bulk of any future resources. The seams are steeply dipping and likely to produce a profitable 250,000-750,000tpa.
The project is located close to a sealed highway that is linked to both Atlantic and Pacific ports
The coal is likely to be in demand in Brazil and/or Peru as well as domestically.
Management has done this before.
MD Andrew Caruso and Project Director John Malysa have experience in mining steeply dipping coal seams. This gives us confidence that (management) can do this again.
Titiribi looks set to be a low capital project in a region with few barriers to entry in the junior coal space.
Ascot does not plan to wash the coal and this has resulted in relatively low capex. Anticipated margins are expected to provide a healthy operating profit.
Titiribi is likely just a foothold in the country, with Ascot having plans to grow through future acquisitions in Colombia.
We see Colombia as a good mining investment environment. The country is the fourth largest coal producer globally, and was recently ranked the seventh most attractive country in the world for mining investment.
Catalysts going forward include:
- Resource estimate - 3Q13
- Scoping study - 3Q13
- Further acquisitions - 2013
- Reserve definition - 1Q14
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