Asanko Gold Exceeds Gold Production Expectations

GuruFocus.com

- By Alberto Abaterusso

Asanko Gold Inc. (AKG) reported operating results for the fourth quarter of 2016 last Wednesday. From the Ghanaian Asanko Gold Mine's Phase 1, the company produced 57,178 ounces of gold that exceeded the guidance that was set by the company, which was between 52,000 and 57,000 ounces.


The company sold 58,483 ounces of gold at an average realized price per ounce of $1,199, generating revenue of approximately $70.1 million during the quarter.

At Asanko Gold Mine, the company started mining activities in January 2016 and in April 2016 it announced that gold production reached its commercial value.

Asanko Gold can rely on a solid balance sheet, which is characterized by a total liquidity of approximately $66 million in cash on hand and working capital that can be readily converted into cash. The company has a small amount of long-term debt that it will start to reimburse after June 30, 2018. The total amount of long-term debt is approximately $150 million.

Fourth quarter 2016 operating performance represents a milestone in the growth of the company that aims to become a mid-tier gold producer through a phased development approach, with the prolific Asanko Gold Mine in Ghana being the company's crown jewel.


"The operations once again had an impressive quarter with record production of over 57,000 ounces. With the mine now delivering against expectations and the process plant running steadily at 300,000 tonnes per month, or about 20% above design, we enter 2017 with a high performance operating asset that will position us well to finance our Phase 2A expansion project with cash flow from the operations," said Peter Breese, Asanko Gold Inc.'s President and CEO. (Asanko Gold Inc.'s New Release).



The company was able to achieve the first objective at Asanko Gold Mine, i.e. commercial production reached and exceeded, even expectations, without using more financial resources than originally planned. The company has not yet announced the cash flow generated by the fourth quarter's operations. However, considering that over the trailing 12 month's timeframe, the company generated cash flow of $27.99 million from operations and that capital expenditures have been contained within the budget's limits, the company should have sufficient financial resources to continue with the development project of the mine, called Phase 2A, through organic growth strategy.

The disadvantages are the cons represented by the country itself, Ghana. This involves a higher country risk profile compared to other companies that have operations in more friendly jurisdictions. Even though the Ghanaian government showed to be favourable to mining activities by reducing the corporate tax from 35% to 32.5%, the local communities are historically hostile to colonial dominion.

Furthermore, bigger gold producers such as AngloGold Ashanti have recently experienced several issues at their mines in Ghana. AngloGold Ashanti had issues at Obuasi mine where illicit mining activities caused several interruptions to the company's operations and related activities. At that time, AngloGold Ashanti filed a dispute with Ghana at the International Centre for Settlement of Investment Disputes due to the Ghanaian authority's failure to reestablish law and order at the property. The case was recorded last May 2, 2016 (see AngloGold Ashanti's NR).

Asanko Gold Inc. (AKG) closed at $3.78 on Jan. 13, up 13 cents from the previous trading day and gained 23.2% year to date.

The company has a market capitalization of $754.22 million and an enterprise value of $829.09 million according to the last share price.

The stock is trading at 1.79 times the book value and at 20.48 times the Ebitda. As of today, analysts suggest to buy shares of Asanko Gold and the average target price is $5.18 per share, ranging from a low of $3.60 and a high of $6.50.

Asanko Gold has approximately 201.83 million shares outstanding, of which 186.6 million is float.

The percentage of shares outstanding held by insiders is 7.36% and 51.30% is held by institutions.

During the third quarter of 2016, Mario Gabelli (Trades, Portfolio) reduced his position in Asanko Gold Inc. by 23.30%. The guru currently holds 161,300 shares of the company.

Disclosure: I have no positions in Asanko Gold Inc.

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This article first appeared on GuruFocus.