Ascendant Copper Holding Steady On Ecuadorian Nest Egg: Part 1}

Ascendant Copper Holding Steady on Ecuadorian Nest Egg: Part 1

by

Andrew K. Burger

The situation at Ascendant Copper (TSX:ACX) in Ecuador might serve as a snapshot of the enormous risks and rewards facing management at mining companiesand their investorsworldwide, but particularly in Ecuador and South America, where the volatile political landscape has shifted towards socialist-populist democratic inspired government action in recent years.

On the upside, Ascendant is sitting on Junin, a world-class copper-molybdenum-silver-gold porphyry prospect, as well as two others, the Chaucha and Telimbela prospects. We are sitting on the second if not the largest copper/molybdenum property in the world, commented John Haigh, Ascendants Investor Relations manager. Our Junn property consists of 23,475 acres of property containing billions of pounds of metal resource; in fact we are looking at a potential in excess of a billion pounds of molybdenum and in excess of 20 billion pounds of copper.

On the downside, the Correa government on September 25 announced the formal suspension of Ascendants mining and community development activities in the Junin area in an effort to defuse tensions, an announcement Ascendant said was only a repetition of a previously announced order.

These tensions boiled over in December of last year on Ascendants agricultural property. Anti-mining activists confronted a third party contracted agricultural firms Intag workers and security guards resulting in almost 60 people being held captive by activists, and locked in the local community church for several days until order was restored by Ecuadorian police.

Ascendant in Ecuador

ACX has magnificent assets in a country that has not had an operating metal mine for about 50 years. There are a few artisanal gold miners causing havoc with the environment with mercury that have the approval of the Government and that is the extent of metal mining in Ecuador, Haigh told Resourcex.

Ascendants two main stakes in Ecuador are the Junin and Chaucha prospects, two NI 43-101 compliant copper-molybdenum properties. The Junin prospect has an inferred, NI 43-101 compliant resource estimate of 982 million tonnes. A drilling program is under way at the Chaucha property on the western flank of the Andes, the results of which are expected to up its combined resource estimate, according to Haigh.

Though preliminary indications of ore grade at the copper porphyry deposit at Chaucha are not as high as those at Junin, they are still high enoughabove 0.4% copper excluding molybdenum, gold and silver creditsto warrant further exploration and development, particularly given the fact that the Pacific port of Belo lies just 40 kilometers away, he pointed out.

The Junin deposit is supported by 10,000 meters of historical drilling and the Chaucha deposit is supported by 13,800 meters of historical drilling with about 10,000 meters of recent drilling by the company. We will have the current drilling sanctified by a NI43-101 report, and it looks like the resource package should increase to about 300 million tons, Haigh elaborated.

The Chaucha project would support a 30,000 to 40,000 tonne-per-day operation that would produce about 100 million pounds of copper per year at a cost of $1.40 per pound. At $3 copper, it could generate cash flow of about $160 million a year for 20 years.

Given the companys 70.8 million shares outstanding and excluding deductions for non-operating and non-cash flow expenses, liabilities and other deductions, this would translate into annual earnings per share of $2.26. Taking into account options and warrants, this would result in a rough annual EPS of $1.69 on a fully diluted basis.

Ascendant’s management believe that world copper prices will remain high for the rest of this year and into next. We think that reduced residential copper use in the States will be offset by increased copper use in hybrid gasoline-electric cars, which is double that of conventional cars and that China will continue to use all the copper they can get their hands on. We think that an average price of $3.18 per pound is achievable in 2008, Haigh commented.

The Vagaries of a Shifting Political Landscape

Just how damaging the potential threat of socialist inspired, populist government intervention in mining projects is for mining companies and their investors is evident in the activity of Ascendants shares over recent months.

The companys share price has been in steady decline since its November IPO, It has been trading downwards since July, when it was around C$0.40, only recently making slight gains to the C$0.20 per share level. Problems with environmental activists and with Ecuadorian politics have been the main causes.

The problems that we have had and are having at Junin are the result of a massive campaign of no mining in Ecuador conducted by a local NGO. This particular NGO has been operating since the mid-1990s and were violent objectors to Mitsubishi when they were drilling there from 1993 to 1997 on the same deposit.

Despite all the promise Junin and Chaucha hold, and not just for Ascendant, further development at Junin will have to wait until the dust settles and Ecuadors government establishes its new constitution and set of mining laws and regulations. In the meantime, larger mining companies such as Aurelian and Dynasty are moving forward on mine development in Ecuador; and work on Ascendants Chaucha and Telimbela projects continues. Furthermore, Ascendant is still moving forward with their Rio Tinto strategic partnership to develop additional properties.

In the meantime, Ascendant is shifting direction. Management began deploying a new business strategy about four months ago, the main thrust of which is an aggressive program to acquire near-term copper producing assets in North America, Haigh explained.

Ascendant is currently negotiating to acquire three copper assets in the western US. Announcements are expected in two to three months. This should provide at least one cash flowing operation in 24 months and two in 36 months. The cash will be used to advance and protect the Ecuadorian assets, Haigh commented.

NEXT WEEK: Part two of Andrew Burgers feature story on Ascendant Copper.

This article is intended for information purposes only, and is not a recommendation to buy or sell the equities of any company mentioned herein. It is based on sources believed to be reliable, but no warranty as to accuracy is expressed or implied. The opinions expressed in the article are those of the author except where statements are attributed to individuals other than the author, in which case the opinions are those of the individual to whom they are attributed.

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Ascendant Copper Holding Steady on Ecuadorian Nest Egg: Part 1}