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 Wed Jun 4, 1997
Tracker 1997-06: Ascot - Drilling to start on Laurani farmout from Corriente
    Publisher: Kaiser Research Online
    Author: Copyright 1997 John A Kaiser

 Kaiser Bottom-Fish Tracker 1997-006

June 5, 1997

Ascot Resources Ltd (AOT-V: $0.55)

Tel: (604) 684-9877

Drilling to start on Laurani farmout from Corriente

Ascot is still waiting for Canaccord's Doug Varley to close the special warrant private placement of 2,000,000 units at $0.56 (2,000,000 warrants at $0.65 for one year) announced on April 24. As of Dec 31/96 Ascot had working capital of $1.5 million, much of which should still be intact less the company's overhead. The financing is designed to pay for the first phase of an option to earn 50% of the Laurani project in Bolivia from Corriente Resources Ltd (CTQ-T: $4.00). Ascot must contribute US $3 million over the next 18 months, with US $750,000 spent within 6 months. Afterwards Ascot must share 50:50 with Corriente the underlying option payments that total US $3 million. Corriente optioned the property in late 1995 and has done enough work to set the stage for a reverse circulation drill program expected to start on June 6. The idea for the farmout was apparently generated by Ascot's Ken Carter, who had started looking at outside exploration plays after years of generating plays internally from scratch that never quite achieved critical mass. Ascot's more recent projects on Victoria Island (diamonds), in Labrador and Burkina-Faso are presently on hold. What has me puzzled is why this particular farmout deal happened. Corriente is the operator of the program, so it is not a question of seeking another group's technical expertise or that its own people were too busy with other projects. Nor can it be the case that Corriente lacked the funds, for it has $26 million working capital. The normal interpretation of this scenario is that Corriente's technical experts had considerably less optimism than did the farmout partner, so it made sense to shift the financial risk to Ascot. That interpretation, of course, gives the Laurani prospect second string status, which may be why Ascot's stock price has weakened after an initial flurry and the special warrant financing has not yet closed.

Carter, who declines to speculate on Corriente's rationale for the farmout, views Laurani as an excellent bulk tonnage prospect that may not yet have any two dimensional orebodies in sight, but which has all the earmarks of a major porphyry system within a young volcanic complex. Located in northwestern Bolivia about 125 km southeast of La Paz, the property hosts an extensive epithermal vein system from which silver, copper and gold have been mined for hundreds of years. A 15 hole 5,000 metre reverse circulation drill program is scheduled to begin June 6. No arrangements have yet been made for assaying, so turnaround time is an unknown. The favorable work season on this property runs from June until October. The initial RC holes will be drilled to a maximum depth of 400 metres and are designed more to confirm the geological model than produce an orebody. If results are positive Corriente will try to squeeze in diamond core drilling before the work season ends. Two alteration zones with associated silver-arsenic soil anomalies, the Capaja and Carnavalito, are slated for drilling. They are south of the vein system and apparently have never been drill tested. Several holes will also be drilled below the known vein systems. And two more zones, the Cerro Quereren and Cachani in the southern part of the property, will be drilled if justified by the results of planned mapping and soil chemistry. Speculators should expect about as much arm-waving from Ken Carter as they would from an Afghani twice caught stealing by the Taliban. At this point you either trust Carter's judgement and buy the stock now, or wait to see if the RC drilling results justify diamond drilling. The stock is not likely to go anywhere in the meantime.

For those who already own Ascot, they can adopt the alternative interpretation of the farmout deal as one arising from Corriente management's mindset at the time. Corriente at one point had a $400 million market cap, reflecting a high degree of confidence in the upcoming Chama and Upper Taca Taca drill programs. Disappointing Chama results have since brutalized Corriente's stock price to $4, and while Chama is not yet a lost cause, it is no longer a slam dunk. BHP continues to work on the Lower Taca Taca property, and Corriente still has to drill the Upper Taca Taca project. But the stock now faces an ugly overhang, which will worsen once a prospectus converts a 1.5 million unit private placement done at $13.50 in February by Bunting Warburg and James Capel. (If the prospectus is not filed by June 18, subscribers will be able to ask for their money back plus interest. Corriente has not yet reported that it has filed the prospectus, but you can bet it is racing to do so. If Corriente's warchest gets trimmed from $26 million to $6 million, the current $4 accumulation floor will collapse. Even if Corriente wins the race, its market will have to contend with several underwater blocks of stock the institutional placees would rather not have show up in their June 30 quarterlies.) It is quite possible that Corriente in retrospect regrets farming out Laurani, which would certainly boost my optimism about the Laurani project. A third interpretation is the cynical assessment by Corriente that Ascot is not likely to proceed beyond the first US $750,000 phase unless the initial work yields some hot holes, and that the probability of pulling hot holes at an early stage is quite low. So why not let another junior donate the highest risk capital to the cause? That scenario would make Ken Carter and John Toffan see red, which is why they are prepared to raise new money now at $0.56 rather than blow Ascot's treasury and risk getting caught in a funding drought. I think Carter and Toffan are playing the Laurani very shrewdly, and I certainly intend to hang onto my Ascot position and perhaps add to it. If the financing closes Ascot will have 20.3 million shares fully diluted, similar to Corriente. If Laurani results justify adoption by Corriente as its flagship story, especially if Taca Taca and Chama both lose their lustre, we could expect to see some major catchup price movement by Ascot before Corriente begins to budge.

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