Ashton Mining of Canada Inc.
TSX : ACA

Ashton Mining of Canada Inc.

May 12, 2006 17:00 ET

Ashton Annnounces First Quarter Results

VANCOUVER, BRITISH COLUMBIA--(CCNMatthews - May 12, 2006) -

Equipment and supplies for Renard bulk sample successfully mobilized to the field

Robert T. Boyd, President and CEO of Ashton Mining of Canada Inc. ("Ashton" or "the Corporation") (TSX:ACA), is pleased to report that a number of important objectives critical to the advancement of the Renard bulk sample program on the Foxtrot property in north-central Quebec have been achieved. Additionally, Ashton and its 50:50 Quebec joint venture partner, SOQUEM INC., have received encouraging results from exploration activities on the Foxtrot property.

Bulk Sample Update

The joint venture has now mobilized more than 2,000 tonnes of fuel, supplies and equipment required for the bulk sample program to the field by aircraft. The freight included 1.4 million litres of fuel, underground mining equipment, and certain components of the dense media separation ("DMS") test facility that will be constructed on site this summer. Fabrication of the 10 tonne per hour DMS module by Bond Equipment (PTY) Ltd. in South Africa is now complete, and the unit is being prepared for shipment to Canada. The module is scheduled for delivery to the field in early summer, where it will be assembled with the crushers, generators and other related equipment already on site. Commissioning is currently planned for September. The bulk sample program is on schedule to collect more than 6,000 tonnes of kimberlitic material in 2006, and to recover at least 6,000 carats of diamonds beginning late in 2006 and continuing into early 2007.

Photographs of the equipment and supplies mobilized to the field and the DMS module can be viewed in the Quebec Bulk Sample section of Ashton's website at: http://www.ashton.ca/projects_quebec_photo_gallery.html.

Exploration Update

During the recently completed winter program, the joint venture collected a 35 and a 65 tonne sample from Renard 4 and 9, respectively, by reverse circulation drilling. This material has been shipped to Ashton's North Vancouver laboratory for processing by DMS. Diamond results are expected in the second quarter.

After processing by DMS, 31.8 tonnes of material collected by trenching at three sites along the Lynx dyke system in 2005 returned an estimated diamond content of 118 carats per hundred tonnes ("cpht"). The results from the two trenches at Lynx South were particularly encouraging, where 25.6 tonnes of material returned 138 cpht. A subsequent 25-hole drilling program demonstrated continuity of the dyke system in the Lynx South area over approximately one kilometre of strike length and 200 to 350 metres down-dip. Data from the 45 core holes drilled in this area to date suggest the dyke has a weighted average true thickness of 1.8 metres. Dyke intersections have also been confirmed west of the projected surface expression of the Lynx system.

Winter drilling has resulted in an intersection of the Hibou dyke having a true width of 2.8 metres, and the doubling of the strike length of the North Anomaly dyke to 490 metres. Larger samples will be required to better understand the diamond content of these bodies. In addition, a new kimberlitic dyke was discovered near a site where a diamondiferous boulder was recovered that is located three kilometres southeast of Renard 3. Initial drilling suggests the dyke has an estimated average true width of 1.5 metres.

In March, Ashton raised $15 million through a short-form prospectus offering. As a result of this transaction, the Corporation's treasury position increased to $25 million.

A complete description of the Corporation's activities during the first quarter is set out below. The information is provided pursuant to National Instrument 54-102 and, unless otherwise indicated, reflects the Corporation's results and activities to April 27, 2006.

RESULTS OF OPERATIONS

The net income for the three months ended March 31, 2006 amounted to $944,000 (2005 - $500,000) or $0.01 per share (2005 - $0.01). The net income for the period includes a $1.65 million future tax recovery (2005 - $1.1 million) that is discussed under the "Share Capital" section of this document.

Excluding exploration costs written off to operations, corporate costs for the first quarter of 2006 were comparable to those incurred during the same period in 2005.

Deferred exploration costs attributable to projects and properties that are abandoned or no longer deemed to be significant with respect to their mineral potential are written off when that determination is made. During the first quarters of 2006 and 2005, Ashton did not identify any material properties or projects whose costs should be written off to operations. Exploration costs written off to operations relate primarily to general exploration activities conducted for the identification of prospective mineral properties.

Investment income is affected by the amount of funds under management in a given period and the interest rates that prevail from period to period. While the Corporation's cash resources during the first quarters of 2006 and 2005 were similar in size, market yields have increased during the intervening 12 months. As a result, investment income is higher for the most recent quarter.

The table below summarizes the Corporation's net income or loss, its net income or loss per share and its administrative expenses (excluding exploration costs written off to operations) for the eight most recent quarters.



---------------------------------------------------------------------
Quarter
2004 2005 2006
Second Third Fourth First Second Third Fourth First
------ ------------------------ ------------------------------- -----
Net
income
(loss)
(i) $(1,515) $(2,785) $(2,707) $500 $(2,620) $(3,489) $(4,657) $944
Net
income
(loss)
per
share ( 0.02) (0.04) (0.04) 0.01 (0.03) (0.05) (0.06) 0.01
Admini-
stra-
tive
expen-
ses
(i) 641 562 784 652 555 483 826 650
---------------------------------------------------------------------
(i) Amounts in thousands of dollars


During the first quarter of 2006, the Corporation recognized a future tax recovery of $1.65 million (2005 - $1.1 million), which resulted in the recognition of net income for the period. Otherwise, variations in the quarterly loss and the corresponding loss per share are principally due to the write-off of exploration costs.

Quarterly administrative expenses have not changed significantly over time except for variations attributable to the effect of stock-based remuneration resulting from the granting of stock options. These grants were made primarily in the fourth quarter of 2004 and 2005. In the second and third quarters of 2004, the Corporation incurred higher than usual investor relations expenditures because of visits to field operations by analysts, media and government representatives. During the same period of time, Ashton also incurred professional fees in relation to the recruitment of candidates for management and director positions.

Exploration Activities

Including the contribution of the Corporation's joint venture partners, gross exploration costs in the first quarter of 2006 were $7.4 million (2005 - $5.7 million). Most of these expenditures relate to drilling activities and mobilization of equipment and supplies in preparation for the collection of the bulk sample in Quebec scheduled to begin in the summer of 2006. Ashton's share of these expenditures was $3.6 million (2005 - $3.2 million) of which more than 90 percent was expended in Quebec.

The table below provides, for each of the eight most recent quarters, a summary of exploration costs on a project-by-project basis.



---------------------------------------------------------------------
Amount in Thousands of Dollars per Quarter
2004 2005 2006
Second Third Fourth First Second Third Fourth First
------------- -------------------- --------------------------- ------
Quebec $ 489 $3,089 $1,684 $2,483 $ 162 $2,277 $1,15 $3,417

Alberta 48 143 119 218 77 421 59 20

Nunavut and
Northwest
Territories 642 947 240 443 409 836 228 88

Others 32 45 33 59 34 66 88 66
---------------------------------------------------------------------


Ashton explores in remote areas of Canada. At this stage of the Corporation's initiatives, prevailing weather and ground conditions strongly influence the timing of activities in the field. As a result, the Corporation incurs higher exploration costs during periods of the year when field operations are at their peak, generally during the winter and summer months. Field exploration programs are often suspended for short periods in late spring and fall.

Brooke Clements, Professional Geologist and Ashton's Vice President Exploration, is a Qualified Person under National Instrument 43-101 and is responsible for the design and conduct of the Corporation's exploration programs, and for the verification and quality assurance of analytical results.

Quebec

In January 2006, Ashton and its joint venture partner commenced a $24 million exploration program. The joint venture's 2006 winter field activities, which were completed in April, included the following:

- a drilling program on the Renard cluster focused on Renard 2, 4 and 9. Approximately 65 tonnes of kimberlitic material was collected from Renard 9 for diamond recovery. Smaller amounts were recovered from Renard 2 and 4;

- target drilling on the Foxtrot property resulting in the discovery of a new kimberlitic dyke within the boundaries of the Southeast Anomaly; and

- further evaluation of the Lynx, North Anomaly and Hibou dykes by drilling.

Winter field activities also included preparations for the bulk sampling of Renard 2, 3 and 4 which is scheduled to commence in the summer of 2006. Fuel, supplies and equipment have been flown into camp and the manufacturing of a modular 10 tonne per hour dense media separation ("DMS") test facility also commenced in South Africa. The DMS unit is scheduled for delivery to the field late in the second quarter.

During the first quarter of 2006, diamond recovery from samples collected in 2005 was also completed. This work included:

- analysis of 32 tonnes of material collected from the Lynx dyke system by trenching. This material returned an estimated diamond content of 118 carats per hundred tonnes; and

- caustic dissolution and DMS analysis of core, trench and boulder material from the Hibou dyke system. Based on these results, further work is required to understand the potential diamond content of this dyke.

Alberta, Nunavut and the Northwest Territories

During the first quarter, Ashton conducted very limited work in Alberta, Nunavut and the Northwest Territories. Activities included laboratory analysis of indicator mineral samples collected in 2005 on the Corporation's properties located in Nunavut. This work will continue during the second quarter of the year and will assist in determining the extent of the work program for the remainder of 2006. During the first quarter of 2005, Ashton had conducted geophysical surveys and drilling, resulting in higher costs compared to the corresponding period in 2006.

Other Exploration Activities

In addition to the work in the project areas described above, Ashton undertakes other initiatives to identify new exploration opportunities to ensure that new programs and projects are generated as others are completed or terminated. This work includes grassroots reconnaissance exploration and evaluation of joint venture and acquisition opportunities. This approach enhances the Corporation's ability to maximize its exposure to potential success by maintaining a balanced portfolio of exploration initiatives.

FINANCIAL CONDITIONS AND LIQUIDITY

Cash on hand at March 31, 2006 was approximately $24.9 million (December 31, 2005 - $16.1 million) and working capital was $25.7 million (December 31, 2005 - $15.7 million). The cash balance includes the net proceeds from the short-form prospectus offering that is more fully described in the "Share Capital" section of this report.

The Management's Discussion and Analysis report for the year ended December 31, 2005 contained in the 2005 annual report mailed to shareholders in March 2006 (the "Annual MD&A") accurately describes the Corporation's current financial commitments.

CAPITAL RESOURCES

Approximately $530,000 of the capital expenditures incurred during the first quarter of 2006 relate to the bulk sample program that will commence shortly in Quebec. Included in these expenditures was $404,000 for the installation and construction of a DMS test facility on site.

SHARE CAPITAL

On March 31, 2006, Ashton issued 10,714,286 common shares at a price of $1.40 per share under a short-form prospectus offering for gross proceeds of $15 million. QIT-Fer et Titane Inc. ("QIT"), a member company of the Rio Tinto group, purchased approximately 5.5 million of the common shares. As a result of QIT's participation in the offering, the Rio Tinto group continued to beneficially own 51.7 percent of the Corporation's issued and outstanding common shares. During the first quarter, 93,875 common shares were issued as a result of the exercise of stock options.

The table below presents the Corporation's share capital data as of April 27, 2006.



---------------------------------------
Number of
Exercise Common
Price Expiry Date Shares
---------------------------------------------------------------------
Common shares, issued and
outstanding 94,949,661
Securities convertible into
common shares:
Warrants: $1.30 June 6, 2006 125,000
$1.30 May 19, 2007 2,500,000
Options: $0.65 to August 27, 2006 to
$3.38 December 1, 2015 4,340,075
---------------------------------------------------------------------
---------------------------------------------------------------------
Common shares, fully diluted 101,914,736
---------------------------------------------------------------------
---------------------------------------------------------------------


During the first quarter of 2006, the Corporation renounced $4.7 million (2005 - $3.1 million) of Canadian exploration expenditures to subscribers of flow-through common shares under private placements that closed on December 19, 2005. In accordance with Canadian generally accepted accounting principles, the $1.65 million (2005 - $1.1 million) tax effect of this renunciation has been recorded as a reduction of share capital and as a future tax liability. The Corporation has offset the future tax liability by recognizing the tax benefit of deductions for tax purposes available for future years that had not previously been recognized in the accounts. This has resulted in the recognition of a future tax recovery. These transactions do not affect Ashton's cash position.

RELATED PARTY TRANSACTIONS

Except for the subscription by QIT for common shares described in the "Share Capital" section of this document, there were no material transactions with related parties during the first quarter of 2006.

SIGNIFICANT ACCOUNTING POLICIES

The Corporation continues to follow the accounting policies described in the audited consolidated financial statements for the year ended December 31, 2005 that are contained in the 2005 annual report mailed to shareholders in March 2006.

CRITICAL ACCOUNTING ESTIMATES

The analysis of critical accounting estimates is discussed in the Annual MD&A.

UNCERTAINTIES AND RISK FACTORS

The uncertainties and risks affecting Ashton's activities are discussed in the Annual MD&A.


Contact Information

  • Ashton Mining of Canada Inc.
    Robert T. Boyd
    President and CEO
    (604) 983-7750
    or
    Ashton Mining of Canada Inc.
    Mike Westerlund
    Manager, Investor Relations
    (604) 983-7750
    contact@ashton.ca
    www.ashton.ca