Asanko Gold: More Upside To Come If Gold Stays Above $1500 - Seeking Alpha
- Asanko shares doubled from their lows, lifted by higher gold prices.
- For the company's high-cost mine, the recent upside in gold made a major difference.
- Updated mineral reserve estimate is expected to be released at the beginning of 2020. Asanko promises not to commit to any major capex spending.
- Currently, the situation is developing quite favorably for Asanko. Momentum should continue if gold prices do not dip below $1500, causing a sell-off in all gold names.
Back in late March 2019, I wrote that Asanko Gold (AKG) could present an opportunity on its slide simply because of the cheap valuation and lack of immediate financial threats. As it turned out, the gold upside lifted almost all boats, and Asanko Gold shares doubled from lows seen in early June. However, the company's stock has yet to reach highs seen in 2018 while the gold price is materially higher.
Asanko Gold Mine is a joint venture between Asanko Gold and Gold Fields (GFI), Asanko Gold has a 45% economic interest in the mine. In the second quarter, Asanko Gold Mine produced 62,067 ounces of gold at all-in sustaining costs (AISC) of $1180 per ounce. AISC stay stubbornly high but the company expects them to drop in the fourth quarter and reiterates its full year guidance: production of 225,000 - 245,000 ounces of gold at AISC of $1,040 - $1,080 per ounce.
The biggest point of interest right now is the upcoming updated life of mine plan which should define the future of the mine which materially underperformed expectations, keeping Asanko shares below $1.00 for quite some time. Currently, the company expects that an updated life of mine plan will target 8-10 years of mine life at a production of 225,000 - 250,000 ounces per year and AISC below $1,000 per ounce. Fully in line with the developments we have seen in the industry at the beginning of the year when producers were shelving their costly projects, Asanko promises no major development capital spending.
Source: Asanko Gold presentation
Asanko stresses that ore from Esaase pit will be transported to the processing facility via road trucks, without building specialized transportation infrastructure. Further processing plant expansions are also not planned so the life of mine production estimates are in line with the mine's current production levels. It looks like the company's management has heard the market's call - no more dollars buried underground - and is ready to focus on generating cash flow.
Currently, the setup looks favorable for Asanko. While costs remain a work in progress, the upside in gold prices has surely provided sufficient margin of safety for the mine. At AISC of $1000, production of 237,000 and gold prices of $1500, the mine can be producing almost $120 million of cash per year to pay for non-sustaining capex, taxes, G&A, and, last but not least, shareholders. Of course, it's a big IF at this point: costs should come down, gold prices should stay near $1500 (your author believes that gold price entered a multi-year uptrend once it successfully breached the $1400 level) and no more speculative endeavors should emerge so that shareholders can finally reap the fruits of their patience.
In the near term, gold price dynamics will play a major role - gold must stay above $1500 for Asanko shares to continue its uptrend. Personally, I'd be looking for a momentum entry above $1.10 as I believe that there's more potential for a catch-up play here.
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