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 Wed Jun 10, 1998
Tracker 1998-39: Ascot - Unwatched kettle finally boiling
    Publisher: Kaiser Research Online
    Author: Copyright 1998 John A Kaiser

 Kaiser Bottom-Fish Tracker 1998-039

June 10, 1998

Ascot Resources Ltd (AOT-V: $0.93)

Tel: (604) 684-8950
Web Site: www.bmts.bc.ca/aot/

Unwatched kettle finally boiling

The announcement on Monday afternoon, June 8, by Ascot Resources Ltd (AOT-V) and Major General Resources Ltd (MGJ-V) that Monopros had intersected kimberlite in its first drill hole on Victoria Island has caused both stocks to come alive. Ascot traded 2,107,184 shares to close up $0.27 at $0.93 today, June 10, and Major General gained $0.07 to $0.49 on 1,868,924 shares. Since signing an option deal in early May Monopros has been scrambling to drill at least two magnetic anomalies covered by shallow lakes before spring thaw arrives in Santa Claus' backyard. Indicator mineral sampling done by Ascot and Major General in 1994-95 had revealed diamond indicator mineral trains that terminated in the vicinity of these anomalies. Microprobing has confirmed that some of the pyrope garnets have G10 chemistry, indicating potential for peridotitic diamonds. Eclogitic garnets described as "high interest" have also been found. The chemistry, abundance and angularity of the grains implied a nearby diamondiferous source.

What the news release did not disclose was that this first hole was drilled on a land based secondary target as a test to make sure the reverse circulation rig was working properly. Kimberlite was intersected underneath only 4 metres of overburden. This is exciting because, according to Major General's Bernie Kahlert, Monopros has identified nine geophysical targets in the area after reprocessing the aeromagnetic data. The ice, I understand, is still solid at the latitude of 70 degrees, about 500 km north of the Lac de Gras diamond project where spring thaw is now well underway. Fog is hampering mobility, but at this stage it looks like Monopros will be able to test the lake targets before the end of June. What is also encouraging is that some of the targets are land-based, which means that Monopros may be busy drilling targets all summer. If the early "accidental" success is any indication, geophysics may work very well on the Victoria Island property. On the surface southern Victoria Island is covered by a sedimentary platform that consists of Ordovician limestones (438-505 million years old) that on the Major General permit are about 100 metres thick. This means that all kimberlite eruptions during the past half billion years will be exposed at bedrock. If the limestone cover is magnetically quiet, Monopros may have a much easier time picking off kimberlites than it has in other parts of the NWT such as in the Mountain Province area. The deposition and removal history of the platform is unknown, so we do not know to what degree kimberlites will be intact. A Proterozoic terrane apparently exists for about 1,000 metres beneath the platform, and is made up of quartz rich fluvials. If there is not much of a platform removal history, the softer nature of the platform and Proterozoic rocks than the harder Archean granites may have allowed for the emplacement of much bigger pipes on Victoria island than in the rest of the Slave craton. This first kimberlite, however, has an anomaly with an inferred diameter of 100 metres, about the size of Aber's A154 pipe. The region may be underlain by an Archean craton that could be the northern extension of the Slave craton that hosts the Lac de Gras diamond pipes. The northern end of the Slave craton has in the past been viewed as unprospective for diamonds because a mantle plume related to the Muskox intrusion supposedly destroyed the diamond stability field. But it is not clear that the area of Major General's permits was affected. Normally the discovery of kimberlite in a new region is not very interesting, but the Victoria Island situation is different because Monopros has disclosed that it has found diamondiferous kimberlites on its 7.2 million acre permit to the north. "Diamondiferous" can mean "one microdiamond", so we cannot read too much into that statement, but it is worth noting that Monopros has moved very quickly to explore the Major General/Ascot property. "Judge them by their actions, not their words". The Victoria Island play at this stage is still a longshot, but if significant quantities of diamonds start showing up, both Major General and Ascot will become hot plays this summer, especially if geophysics works well to identify targets.

Who owns what? Ascot and Major General formed a 50:50 JV in late 1993 to apply for permits and explore the Victoria Island project. In 1994 Major General granted Ascot the option to boost its interest to 75% by spending the next $1 million. This was done, but after 1995 Ascot lost interest in the project and declined to spend the money required to drill the project. Part of the reason was that although Ascot's indicator minerals were encouraging, the junior received an inconclusive report from Bill Griffin based on his nickel-thermometry analysis. In 1997 Major General talked Ascot into letting it review the data at its own expense and solicit a potential farm-in partner. Since a farmout would have diluted Major General's 25% share to an insignificant level, a deal was struck between the two juniors whereby Major General could earn back another 25% by spending the next $1 million. This deal was formalized on February 3, 1998. Very importantly for Major General, the deal provided that if Major General could secure a major as a farm-in partner, any money spent by that party would count towards Major General's earn-in requirement. Major General immediately commissioned George Read to review the project. Read's examination of additional indicator mineral grains helped him arrive at a much more optimistic assessment of the diamond potential. Whether it was Read's report or something Monopros had learned about Victoria Island through its own work that made it happen we will never know, but one month ago on May 8 Monopros optioned 51% of the 2 million acre permit for $200,000 cash and $2 million exploration over three years. The juniors and Monopros are still working on details that would expand the deal to include provisions similar to those of the Troymin and Mountain Province deals that allow Monopros to increase its interest. Assuming Monopros vests for 51%, Major General and Ascot will each have a 24.5% interest. If the deal is expanded to allow Monopros to earn 60%, they would each have 20% carried interests.

Ignoring the other projects of Ascot and Major General and assuming a 24.5% net interest, the Victoria Island project is currently carrying an implied project value of $93 million via Ascot (based on 24.6 million fully diluted) and $86 million via Major General (based on 43 million fully diluted). That looks very rich for a NWT diamond play that has hit the first kimberlite in a new region with unknown diamond potential. On the plus side, if this discovery turns out to be a new, important diamond field, the 9 million acres now controlled by Monopros directly and through Ascot/Major General pretty well exclude the participation of any other juniors. To sustain the market's interest and deliver further IPV upside Monopros will have to mount an aggressive exploration campaign this summer well in excess of its $200,000 minimum commitment for 1998. This will depend on how good the results have been on Monopros' own ground, and whether initial diamond counts are encouraging. In the latter case we will have to hope for quick turnaround of caustic fusion results. But before we start fretting too much about the high IPV of the Victoria Island play, we need to remind ourselves that until a week ago the Victoria Island play represented zero percentage of the market capitalizations of the two juniors. Ascot was trading in the $0.40-$0.50 range based on its 50:50 JV with Eastfield Resources Ltd (ETF-V) on the copper-molybdenum-silver Fort property in the Babine Lake area of north-central British Columbia. The Fort prospect is a grassroots discovery made last year which I am watching. A drill program later this summer is needed to help this project catch fire with investors. On May 20, when I issued Kaiser Express 98-02 (South Voisey's Bay: Groping in Dark Attic), Major General was trading in the $0.40-$0.50 range based mainly on its 40% interest in key SVB claims. (Both Kaiser Express 98-02 and 98-03 are now unrestricted at www.canspecresearch.com in my section, and I recommend that Tracker subscribers retrieve these analyses of SVB and Mountain Province.) In the past couple days the market seems to have switched the basis of Major General's market value from SVB to Victoria Island. SVB is currently in the doghouse because of lack of news, which apparently is partly due to slow drilling progress thanks to poor weather. With $14.8 million budgeted for SVB this exploration season, the potential remains high for positive developments. The SVB audience would quickly rediscover Major General if Teck started pulling massive sulphide intersections. Calculating an IPV becomes problematic when a junior has two distinct discovery plays going. If SVB kicks in again, Major General's Victoria Island IPV will not look as high as it does now in a market that seems to have given up on SVB. The same would apply to Ascot if the Fort project comes alive.

Although Major General and Ascot traded similar volume today, Ascot is the engine of the Victoria Island play while Major General is the deadweight Ascot has to drag along. Ascot was a favorite of mine in each of my bottom-fishing guides (95/96/97), and a disappointing performer each year. A key reason for my interest was the fact that a very strong group had built up large positions. Another reason was the involvement of Ken Carter as exploration VP. The Ascot players, however, never never had a chance to unload, mainly because of senior management's desire to get lucky quickly as it did at Eskay Creek. It is a joke that John Toffan did not want to spend another $200,000 to drill the targets generated by $1.3 million in grassroots exploration. Now that Ascot's 75% interest has been reduced to 24.5%, Toffan must be thinking about a guy called Robert Friedland who didn't want to spend any more money on a wild goose chase in Labrador, but capitulated to the wishes of the geologists. When Ascot blew its treasury in 1997 on the Laurani hand-me-down-from-super-cash-rich-Corriente project, I decided that Ascot was one kettle that would never boil as long as I faithfully watched it. Shortly after I gave up the insiders reloaded with a private placement of 3,450,000 units at $0.15, and the stock started going up. Well, now I am watching this kettle again, and if it stops boiling, I accept the blame. If Victoria Island turns into a success story it will be good for the market. All those long-suffering souls who own Major General will finally make some money, and all those not-so-rich-anymore players in Ascot will regain some of their lost influence. On Tuesday Tim Hoare's London brokerage firm jumped in for a special warrant private placement of 1,000,000 units at $0.65. I have a feeling this financing will not be shopped around. There will probably be a pullback in the next couple weeks as the street is forced to pay for the paper it bought today, but if Monopros bangs off a couple more kimberlites and we get some information about the 100% Monopros pipes, this play should hold the market's interest through the summer.

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