Ashton Mining of Canada Inc.
TSX : ACA

Ashton Mining of Canada Inc.

August 14, 2006 18:04 ET

Ashton Annnounces Second Quarter Results

20% of Renard Bulk Sample Now Collected; Excavation of Underground Decline Underway

VANCOUVER, BRITISH COLUMBIA--(CCNMatthews - Aug. 14, 2006) - Ashton Mining of Canada Inc. ("Ashton" or "the Corporation") (TSX:ACA), is pleased to report that the Corporation continued to make substantial progress during the second quarter on the collection of the 10,000 tonne bulk sample from the Renard 2, 3 and 4 kimberlitic bodies on the Foxtrot property in north-central Quebec.

The bulk sample program remains on track to deliver 6,000 carats of diamonds later this year and in the first quarter of 2007. The collection of the initial 2,000 tonnes by surface trenching at Renard 4 is now largely complete, and the material has been stockpiled on site in anticipation of processing in October. Concurrently, progress continues on the underground portion of the sampling program where the underground decline is now advancing through country rock toward Renard 2 and 3 from which a further 8,000 tonnes of material will be collected. Commencing in the fourth quarter, 4,000 tonnes of this material will be processed. The remaining 4,000 tonnes will be retained for processing in the future. Significant progress has also been recorded in relation to the construction of the 10 tonne per hour dense media separation test facility that Ashton expects will be commissioned in late September.

Robert T. Boyd, Ashton's President and CEO, commented: "Our Foxtrot project is one of the few advanced diamond exploration projects in Canada that will deliver large diamonds in 2006. We are confident of its potential to deliver value to our shareholders."

Ashton recently reported diamond results from mini-bulk samples collected from Renard 4 and 9. A 40.6 tonne sample from the northern zone of Renard 4 returned a diamond content of 85 carats per hundred tonnes ("cpht"). A 71.3 tonne sample from Renard 9 returned 45 cpht. Photos of four of the diamonds recovered from these samples, a 1.1 carat off-white and a 0.74 carat clear octahedron from Renard 4, and a 1.70 carat clear pale yellow and a 0.63 carat clear colourless octahedron from Renard 9, can be viewed on our website.

In July, Ashton granted Vaaldiam Resources Ltd. the exclusive option to earn a 40 percent joint venture interest in the Corporation's wholly owned properties in the Coronation Gulf region of Nunavut by incurring $3 million in exploration costs not later than December 31, 2008. This transaction enables Ashton to benefit from advances in the exploration of these properties while continuing to focus the Corporation's resources on the Quebec project.

On August 10, 2006, Stornoway Diamond Corporation ("Stornoway") filed its circular in support of the unsolicited take-over bid to acquire all of the outstanding shares of Ashton. The Board of Directors of Ashton recommends that the Corporation's shareholders take no action in response to the Stornoway bid for the present time.

Management and the Board of Directors are committed to securing the greatest value for Ashton shareholders. The Board of Directors has appointed a Special Committee of independent directors, each of whom is an experienced industry veteran, to carefully evaluate Stornoway's bid documents and to examine a full range of alternatives to maximize value for all shareholders. This process, which will proceed in consultation with independent financial and legal advisors, will include a rigorous analysis of Stornoway's early stage exploration assets which underpin the value of its share-based offer. The Committee will also carefully consider the confidential approaches that Ashton has already received from parties interested in alternative transactions, as well as additional proposals that may be presented to Ashton.

Ashton's Board Directors will communicate its views to shareholders on the financial adequacy of Stornoway's unsolicited proposal through a Directors' Circular that will be distributed not later than August 25, 2006.

A detailed description of the Corporation's activities during the second quarter is presented below. The information is provided pursuant to National Instrument 54-102 and, unless otherwise indicated, reflects the Corporation's results and activities to July 28, 2006.

RESULTS OF OPERATIONS

The loss for the three and six months ended June 30, 2006 amounted to $1.7 million (2005 - $2.6 million) or $0.02 per share (2005 - $0.03) and $736,000 (2005 - $2.1 million) or $0.01 per share (2005 - $0.03) respectively.

Excluding exploration costs written off to operations, corporate costs for the second quarter of 2006 did not vary significantly compared to the same period in 2005. Office and administration costs include $22,000 (2005 - $5,400) of interest expense calculated under specific rules of the Income Tax Act with respect to the renunciation of flow-through expenditures.

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. The majority of exploration costs written off to operations during the second quarters of 2006 and 2005 relate to drilling programs that did not result in the identification of kimberlites that warrant further evaluation.

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. During the second quarter, the Corporation's cash resources were higher in 2006 compared to 2005. In addition, interest rates have increased over the last twelve months. As a result, investment income is higher for the most recent quarter.

The following table 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
Third Fourth First Second Third Fourth
--------------------------------------------------
Net income
(loss)(i) $(2,785) $(2,707) $ 500 $(2,620)$(3,489)$(4,657)
Net income
(loss) per share (0.04) (0.04) 0.01 (0.03) (0.05) (0.06)
Administrative
Expenses(i) 562 784 652 555 483 826
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--------------------------------------------------
Quarter
2006
First Second
--------------------------------------------------
Net income
(loss)(i) $ 944 $(1,680)
Net income
(loss) per share 0.01 0.02
Administrative
expenses(i) 650 579
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(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 quarters of 2004 and 2005. Stock-based remuneration is a non-cash cost. In the third quarter 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 second quarter of 2006 were $4.1 million (2005 - $2.0 million) of which more than 87 percent was expended in Quebec. 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 that began in early July. Ashton's share of these expenditures for the quarter amounted to $1.8 million (2005 - $682,000) because the Corporation received a Quebec government tax credit of $900,000 (2005 - $1.2 million) relating to 2005 Quebec exploration costs. In the first half of 2006, Ashton's total net exploration expenditures amounted to $5.4 million (2005 - $3.9 million).

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
Third Fourth First Second Third Fourth
--------------------------------------------------
Quebec $ 3,089 $ 1,684 $ 2,483 $ 162 $ 2,277 $ 1,150
Alberta 143 119 218 77 421 59
Nunavut and
Northwest
Territories 947 240 443 409 836 228
Others 45 33 59 34 66 88
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--------------------------------------------------
Amount in Thousands of Dollars per Quarter
2006
First Second
--------------------------------------------------
Quebec $ 3,417 $ 1,409
Alberta 20 6
Nunavut and
Northwest
Territories 88 124
Others 66 239
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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 sometimes 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

Program activities on the Quebec project during the second quarter of the year included the following:

- mobilization of equipment and supplies to the field in preparation for commencement of the bulk sampling program in July;

- laboratory analysis of both indicator mineral and kimberlitic samples. Diamond work included the recovery of 34.5 carats from 40.6 tonnes of kimberlitic material collected from the northern zone of Renard 4, giving this sample an estimated diamond content of 85 carats per hundred tonnes ("cpht"). On a cumulative basis, samples processed to date from the northern zone of this body have returned an estimated diamond content of 101 cpht. In addition, the analysis of approximately 71 tonnes of kimberlitic material from Renard 9 was completed after June 30 and resulted in the recovery of 31 carats of diamonds giving this material an estimated diamond content of 45 cpht;

- target drilling on the Foxtrot property. This work resulted 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.

Taking into account the plans for collection of the bulk sample and related contractual arrangements, Ashton and its joint venture partner have approved an increase of $5 million for the 2006 Quebec program budget. The total budget now stands at $29 million, one-half of which is for Ashton's account. The increase reflects additional costs associated with a revised mining plan, higher construction and engineering costs for the dense media separation ("DMS") test facility, and greater than anticipated operating costs. The bulk sample program calls for the collection of approximately 2,000 tonnes of kimberlitic material from Renard 4 by surface trenching and the collection of approximately 8,000 tonnes from Renard 2 and 3 by underground mining methods. Under the approved program, approximately 2,000 tonnes from each body are slated for processing by DMS starting in the fourth quarter. This material is expected to yield a parcel of at least 6,000 carats of diamonds. In July, surface trenching commenced at an outcrop on the northern zone of Renard 4 and the construction of a portal and development of the underground ramp into Renard 2 and 3 was initiated. In addition, summer exploration work that includes prospecting, indicator mineral sampling and ground geophysical surveys is now underway on the Foxtrot property.

Alberta, Nunavut and the Northwest Territories

During the second 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 third quarter of the year and will assist in determining the extent of the future work programs. During the second quarter of 2005, the Corporation conducted more extensive laboratory analysis work, resulting in higher costs compared to the corresponding period in 2006.

Subsequent to June 30, Ashton granted Vaaldiam Resources Ltd. ("Vaaldiam") an exclusive option to earn a 40 percent interest in the Corporation's wholly owned Eokuk, James River, Kim, Ric and Vic properties in the Coronation Gulf region of Nunavut. In order to earn this interest, Vaaldiam must incur $3 million in exploration costs not later than December 31, 2008, $1 million of which must be incurred not later than December 31, 2006. In addition, Vaaldiam must issue 65,000 and 130,000 common shares to Ashton on April 1, 2007 and 2008 respectively.

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 June 30, 2006 was approximately $22.7 million (December 31, 2005 - $16.1 million) and working capital was $22.7 million (December 31, 2005 - $15.7 million).

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 $1.0 million of the capital expenditures incurred during the second quarter of 2006 relate to the bulk sample program underway in Quebec and, more specifically, to the installation and construction of a DMS test facility on site. The construction and commissioning of this facility is scheduled for August and September.

SHARE CAPITAL

The table below presents the Corporation's share capital data as of July 28, 2006.



----------------------------------------
Exercise Expiry Number of
Price Date Common Shares
----------------------------------------
Common shares, issued
and outstanding 95,000,161
Securities convertible
into common shares:
Warrants: $ 1.30 May 19, 2007 2,500,000
Options: $ 0.65 August 27, 2006
to to
$ 3.38 December 1, 2015 4,270,325
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Common shares, fully diluted 101,770,486
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On June 6, 2006, 125,000 warrants with an exercise price of $1.30 per share expired unexercised.


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