Asanko cuts 2018 production guidance

Asanko Gold (TSX: AKG; NYSE-AM: AKG) is not going to meet its 2018 production guidance at its gold mine in Ghana, the company disclosed in a recent site visit presentation.

The company noted on the thirteenth page of the 27-page updated technical presentation, which was posted on its website on Nov. 9, that production from the mine next year would come in at around the same level it expects to produce this year — or somewhere in the range of 205,000 and 225,000 oz. gold — rather than the 267,943 oz. gold it had forecast earlier this year in a June feasibility study.

Asanko also stated that “practically” the deposit in its Nkran pit “is limited to 3-million-tonne-per-year rates,” and that a “geotechnical redesign of oxide slopes have added waste strip [of] around 4 million tonnes.”

The company also forecast a 1.3-million-tonne reduction in available oxide ore planned from its Akwasiso and Dynamite Hill pits. One of the implications, the company said, would be that stockpile feed would be needed to offset the reduction in oxides.

The company added that its Cut 2 pushback of the pit slopes at Nkran was 50% complete and will continue next year.

Shares of Asanko listed on the Toronto Stock Exchange fell 3% on the news to finish the day at $1.24, with 3.9 million shares traded.

At press time the company’s shares were trading at a 52-week low of 93¢. Its shares traded at a 52-week high of $5.07 in January 2017.

Mining operations at Asanko Gold’s Nkran open-pit gold mine in Ghana. Credit: Asanko Gold.

Alex Buck, Asanko’s manager of investor and media relations, explained to The Northern Miner via email that the company intends to issue formal 2018 production and cost guidance in December, once the budget and mine plan have been formally approved by the board of directors.

“In the meantime, the disclosure in the recent site visit technical presentation was to ensure we did not selectively disclose solely to the participants on the site visit, as questions about 2018 were bound to come up, and there have been some changes to the mine plan since the June definitive feasibility study, e.g., Akwasiso having less oxide ore tonnes and more granite ore tonnes than previously expected.”

The additional 4 million tonnes of strip, she said, “is not material, as it represents about two months of waste mining. It is solely a function of flattening the angle of the oxide slopes. We are doing this work as part of our continuous responsible development of the Nkran pit to ensure its longevity and sustainability as a primary ore source at the Asanko gold mine complex.”

In a research note commenting on the unexpected change in the company’s 2018 guidance, Jeff Killeen, an analyst with CIBC, noted that the new guidance “is materially below our estimate of around 246 koz and well below the second-half 2017 technical study that guided for around 267 koz in 2018.”

In terms of the pushback of the pit slopes at Nkran, he said, the news compares unfavourably with earlier guidance. “Cut 2 was originally set to be complete in mid-first quarter, with Cut 3 starting by fourth-quarter 2018,” he wrote. “We previously adjusted our 2018 capex higher, recognizing increased waste mining may be necessary, which is currently running at $4 million to $5 million a month. We model around $50 million for 2018.”

The processing plant at Asanko Gold’s namesake gold mine in Ghana, which handles ore from the nearby Nkran pit. Credit: Asanko Gold.

Killeen has a 12- to 18-month target price on Asanko’s shares of $1 apiece and noted that “with potential for further negative reserve revisions on the horizon and operational performance issues to date, we continue to expect AKG’s shares to underperform.”

Rahul Paul of Canaccord Genuity downgraded Asanko’s rating to “hold” from “buy,” and cut his target price on the stock from $2.50 per share to $1. “We believe the investment appeal has diminished and risks have significantly increased,” Paul said in a Nov. 21 research note.

Raymond James’ Chris Thompson trimmed his target price on the company to $3 per share from $3.50 per share.

Asanko’s shares took a beating in August, when the company cut its 2017 production guidance from between 230,000 and 240,000 oz. gold down to between 205,000 and 225,000 oz. gold.

Management attributed the lower production guidance to two things: First, historic artisanal workings at its Akwasiso pit were deeper than previously thought, which meant less oxide and more mineable ore tonnes than expected. Second, results from the ore reconciliation process had identified blast movements as a source of ore losses and dilution in the Nkran pit.

The 9% change in production guidance also brought a 5% change in the forecast of all-in-sustaining costs (AISCs). Under its July 19 production guidance, AISCs ranged between US$880 and US$920 per oz. for 2017. The new guidance released on Aug. 3 raised AISCs to between US$920 and US$960 per ounce.

In May, short-seller Muddy Waters published a report alleging that the company “is highly likely to end up a zero.”

Asanko has rejected the allegations.

The mine achieved commercial production in April 2016 and consists of two large deposits: Nkran, which is in production, and Esasse. There are also a number of satellite deposits on the concession: Abore, Asuadai, Akwasiso, Dynamite Hill, the Nkran Extension, Adubiaso and the Adubiaso Extension.