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The 2000s gold bull has brought a lot of attention to West Africa.
This attention has not always translated to success given the unstable
geopolitical environment in this part of the world. But the diligent
miners able to endure and overcome the challenges have been rewarded with
some major discoveries that have been developed into profitable gold mines.
One country really thriving is Ghana. On the geopolitical front
there’s probably no safer country in Africa with its government acting under
a stable long-standing constitutional democracy and its tax and mining laws
fairly well-legislated. And on the geological front there’s definitely
no rival, with Ghana host to four massive underexplored gold-rich
greenstone belts.
Ghana’s gold-mining success has resulted in a 35% increase in output over
the last decade. It has grown to become Africa’s second-largest gold
producer, and the 10th largest in the world. And when Asanko Gold’s
flagship mine commissions in 2016, this country will see another huge boost
in production.
The Asanko Gold we see today is a new-look company via its early-2014
acquisition of PMI Gold. Old Asanko (formerly Keegan Resources) and PMI
were both early movers into West Africa. And their marriage is a match
made in heaven given their outstanding logistical and corporate synergies.
This deal ended up bringing together the former Esaase and Obotan projects
to form the newly-dubbed Asanko Gold Mine (AGM). AGM is located in the
emerging Asankrangwa gold belt, just to the west of the better-known Ashanti
gold belt where Newmont, AngloGold, and Goldfields operate several prolific
gold mines. And its complex of deposits combine to make it one of the
most robust gold projects in Ghana.
Obotan and Esaase are located about 30km apart. And both projects
are known to have long histories of smaller-scale artisanal mining.
This mining was primarily alluvial in nature, though it pointed towards an
accessible hard-rock source. And the larger mining companies indeed
found this source when they applied modern exploration techniques.
Obotan’s mineralization was the most intriguing early on. And large
Australian miner Resolute Mining was able to delineate a multi-million-ounce
deposit that it started mining via open-pit methods in the late 1990s.
Unfortunately this operation was prematurely shut down as a result of
bear-market-low gold prices around the turn of the century. And it
ended up producing 730k ounces in this first go-around.
With gold prices heading higher in the subsequent years, Obotan and its
large in-ground resource naturally attracted attention. And PMI Gold
was the lucky winner of its prospecting license in 2006. That same year
Asanko Gold took over the Esaase project located just northwest. And
this kicked off an exploration cycle that would highlight the vast potential
of the Asankrangwa gold belt.
Obotan and its flagship Nkran deposit was especially impressive.
PMI’s aggressive exploration had uncovered a large richly-mineralized gold
zone much more robust than Resolute had defined. Per the latest
resource estimate it was found to hold 4.5m ounces of gold, including
2.5m ounces in the proven-and-probable reserve categories. And it was
this core reserve base that would feed a wildly positive feasibility study in
2012.
PMI was able to procure Obotan’s mining lease shortly after completing the
feasibility study. And in 2013 it continued to explore the project
while performing pre-development work in preparation for a mine build.
The critical component of this build was financing, which is no easy feat in
these crummy gold markets. So PMI eventually decided its best bet would
be to team up with neighbor and deeper-pocketed Asanko Gold.
Asanko’s Esaase project was advancing nicely, but it was keenly aware that
Obotan was the real treasure of this emerging gold belt. Provocatively
AKG had tried to acquire PMI about a year earlier, but to no avail. Its
diligence paid off though, with the second go-around closing in February
2014.
Within a few months of the acquisition Asanko Gold approved construction
at Obotan. And this would be the first of two phases in building out
the greater and newly-dubbed Asanko Gold Mine. Obotan’s development
would be followed by Esaase’s. And at full commercial production AGM
will be one of Africa’s largest gold mines, producing in the neighborhood of 400k
ounces per year.
Phase one’s $295m price tag is fully funded with the new company’s
combined treasury and debt facility. And it is expected to pour its
first gold in Q1 2016. And per a Definitive Project Plan just announced
in November, this fantastic mine ought to be profitable even at lower gold
prices.
Mining will occur via conventional open-pit methods. Since the ore
is fresh/sulfide it’ll require milling, employing
crush/grind/gravity/carbon-in-leach circuits. And the operation will
run at a life-of-mine mill-feed rate of 8.2k metric tons per day. With
life-of-mine recoveries and average grades that exceed 92% and 2.0 g/t
respectively, phase-one production will average 190k ounces annually over a
12-year mine life.
AGM’s phase-one gold will be produced at all-in sustaining costs of only $781/ounce,
easily in the lower quartile of industry average. And this will allow
for a solid 20% after-tax internal rate of return at $1150 gold, and the IRR
would obviously increase proportionally if AGM’s gold is sold at higher
prices.
Phase-two production will come from the nearby Esaase deposit.
Esaase is a grassroots discovery made by Asanko Gold. And its extensive
exploration has defined a massive 5.9m-ounce deposit. AKG has
performed multiple economic assessments at Esaase over the years. And
the latest, a 2013 prefeasibility study, showed this project to also hold
great economic potential.
Mining would focus on Esaase’s core 2.4m-ounce reserve base. The ore
would need to be milled like Obotan’s, but processing would require the extra
step of running through a flotation circuit. Feed grades and recoveries
are a little lower than Obotan’s, but all-in sustaining costs would still be
under $1000/ounce. And at a throughput rate of nearly 14k tpd,
production from Esaase would average about 200k ounces per year over a
10-year mine life.
Interestingly since this PFS was performed prior to the PMI acquisition
and was based on a standalone operation, it is essentially obsolete.
Since Esaase will now be developed as the second phase of a larger mining
operation, there are numerous synergies that ought to drastically improve the
economics.
The biggest cost savings will come from not having to build standalone
processing facilities. Esaase is close enough to Obotan that its ore
can be trucked. The existing facility would need to be expanded and a
flotation circuit would need to be added in order to accept Esaase’s ore, but
presumably this would be much cheaper than building a full onsite facility
from the ground up at Esaase.
There will also likely be many operational synergies. And for this
reason AKG is in the process of performing a scoping study that would
incorporate Esaase into a larger phased mining operation. This study is
expected to be completed in Q1 2015. And if it comes back positive as
expected, it ought to lead to more feasibility work that would hopefully
culminate in development shortly after phase one achieves commercial
production and starts spinning out cash.
Overall Asanko Gold’s AGM is one of the world’s elite development-stage
gold projects. Its first phase of operation is fully permitted and
fully funded. And thanks to rough market conditions that have
annihilated the gold-mining sector, investors have the opportunity to get
onboard this emerging mid-tier producer at bargain-basement prices.
As you can see in this four-year chart, Asanko Gold’s stock has fallen
sharply since its 2011 all-time high. And the primary driver for this
decline is the price action of AKG’s underlying metal. Since gold’s own
2011 all-time high, it has fallen into a deep dark cyclical bear market that
has taken it to levels not seen since 2009. And this has been none too
kind to highly-leveraged gold stocks like AKG.
AKG’s descent into bear-market mode got a kick start in September 2011
upon the release of Esaase’s first PFS. Unfortunately this PFS wasn’t
well-received by the markets as a result of much higher costs than what was
outlined in the previous assessment. Couple this with gold’s major
September beat down, and AKG would see its stock price nearly cut in half in
short order.
AKG finally caught its breath when gold bounced the following month, but
it would be rough sailing over the next several years as gold gave up its
ghost and entered into bear-market territory. With such an ugly
downtrend there aren’t many positives to analyze from a technical
perspective. So the true test of AKG’s resolve is how it performs on
the rare occasions when gold gets legs.
Since its 2011 high gold has forged four meaningful uplegs. And it should
be expected that gold stocks outperform their underlying metal amidst such
uplegs. If they don’t, there’s really no reason to own them given their
outsized risks compared to gold itself. And as you can see, AKG has
been a consistent outperformer.
In the first two uplegs in 2012 AKG positively leveraged gold 3.0x, rising
an average of 47% to gold’s 15%. AKG performed even better in 2013’s Q3
snapback upleg, soaring 67% to gold’s 18% (3.7x leverage). And then in
early 2014 AKG again performed well, rising 51% to gold’s 16% (3.2x
leverage).
This stock has already shown the ability to pop when gold shows signs of
life. And since it is in better fundamental shape now than it was in
these past uplegs, it really ought to fly when gold runs higher. The new-look
Asanko Gold’s 10m+ ounce resource base really ought to attract
investors when they return to this space. And with mine development now
underway, institutional investors and the larger mining companies will take
AKG a lot more seriously.
Overall AKG ranks as one of only a handful of quality junior gold stocks
poised to thrive when gold turns the corner. The carnage of the last
few years has really taken its toll on this sector, but this group is ready
to roll when interest returns. And now is the time to load up on these
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The bottom line is new-look Asanko Gold controls the heart of one of
Ghana’s most-exciting new gold belts. AKG’s flagship AGM project is
host to over 10m ounces of gold resources. And a series of positive
feasibility studies shows that its core reserves are amenable to profitable
mining.
Asanko Gold will develop this exciting new mine in two phases, with
fully-permitted and fully-funded phase one construction now underway.
AGM is expected to pour its first gold in Q1 2016. And investors are
able to take advantage of bargain-basement prices today to get in on one of
the world’s premier gold-mine-development projects.
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