Asanko turns to profit in Q1, eyes production growth

Ghana-focused miner  Asanko Gold (TSX: AKG; NYSE-MKT: AKG) has swung back into the black with 2017 first-quarter earnings of US$7.8 million, or US4¢ per share, beating average analysts’ expectations of a cent per share.

“We had a strong start to the year with a record quarterly production of 58,187 ounces. And, importantly, we have returned to positive earnings,” Peter Breese, the company’s president and CEO, said on a recent conference call. Asanko recorded a US2¢-per-share loss in the fourth quarter of 2016.

During the three months ended in March, the producer sold 57,812 oz. from its Asanko gold mine in Ghana, which entered commercial production last April. It generated US$69.3 million in revenue at an average realized gold price of US$1,199 per ounce.

All-in sustaining costs, however, moved up to US$956 per oz. from US$893 per oz. in the previous quarter, as Asanko accelerated the tailings dam lift.

The lift started a quarter ahead of schedule because the plant has been running 20% above design for the second quarter, Breese noted, adding that the “sustaining capex has impacted our all-in sustaining costs for the quarter.”

Cash provided by operating activities before working capital changes was US$28.8 million, or US14¢ per share, ahead of the consensus analyst estimates of US11¢ per share.

While analysts applauded the decent quarter, many are waiting for Asanko’s new life-of-mine plan and expansion feasibility study.

“It is difficult to benchmark performance in the absence of a more detailed mine plan based on current reserves. As a result, we expect delivery of the expansion feasibility, scheduled for this quarter, to be a catalyst,” BMO analyst Andrew Breichmanas writes.

An updated 2017 reserve statement shows that the 11 deposits at the Asanko mine host 96.2 million tonnes at 1.58 grams gold per tonne for 4.88 million ounces.

Mining operations at the Nkran open pit. Credit: Asanko Gold.

The company has largely been mining the Nkran deposit to feed the 3-million-tonne-per-year plant that is operating at 3.6 million tonnes a year.

The mine is on track to churn out 230,000 to 240,000 oz. gold in 2017, with Asanko aiming to reach 450,000 oz. per year by 2020. It plans to achieve that by bringing the Esaase deposit — which hosts more than half of reserves, into production, while improving the current plant infrastructure over two stages.

The first stage, dubbed Project 5 Million, will expand the plant from the current 3.6 million to 5 million tonnes per year. Estimated capital costs are between US$25 million and US$30 million, with Asanko aiming to fund this internally.

“Construction work on Project 5 Million began in April and is ahead of schedule,” Breese said, noting that commissioning should start in late 2017. As a result, this should lead to higher production of 270,000 to 300,000 oz. a year in 2018, and lower all-in sustaining costs.

The executive said building the conveyor belt at Esaase will take 18 months and cost up to US$110 million.

As Asanko prepares to bring Esaase online in 2019, it will feed the upgraded plant with ore from the Nkran deposit and satellite deposits.

Following regulatory approvals and drilling success the company accelerated its plan to mine Akwasiso in June 2017, instead of early 2018. Mining at the Dynamite Hill deposit should start in the first quarter of 2018.

Given Nkran’s history of “pit wall failures,” the company has developed a 1.6-million-tonne stockpile and introduced measures “to predict events and mitigate production disruptions,” Raymond James analyst Chris Thompson writes.

The second expansion stage, named Project 10 Million, will double the plant capacity to 10 million tonnes a year with a 5-million-tonne-per-year carbon-in-leach plant.

The conveyor route from Asanko Gold’s Esaase gold deposit to the processing plant in Ghana. Credit: Asanko Gold.

At that time, the company expects to increase mining at Esaase to 7 million tonnes a year, with the other 3 million tonnes coming from Nkran and the surrounding pits. Estimated costs for this expansion stage is US$210 million to US$220 million.

Asanko, which plans to fund both expansions internally, cautions it may delay Project 10 Million until it generates enough liquidity.

Asanko ended the quarter with US$48 million in cash and US$156 million in debt. It received another US$10.6 million in gold sales and US$15 million from value-added tax receivables after the quarter ended, Thompson writes.