“We are short Asanko Gold because we believe it is highly likely to end up a zero,” the researcher states.
Citing the reasons for this report, Muddy Waters explains: “On the back of flawed geology, Asanko Gold made investments in Nkran, its satellite pits, and Esaase that we believe will never be recovered.
Nkran is already experiencing a serious collapse of its west wall that we believe is a sign of Asanko Gold’s desperation. We estimate Asanko Gold needs to spend US$75 – $115 million soon to keep mining Nkran, or the mine will ‘pinch out’.
Spending the money likely means Asanko Gold will run out of liquidity in 2018; not spending the money leaves the company without the cash flow to develop its largest deposit, Esaase.”
The researcher further notes Asanko Gold’s “satellite deposits” are unlikely to yield significant cash flow, due to likely flawed geology. In a December 2016 upgrade to their resources, the company apparently used a record gold price – $2 000/oz – to boost their estimated value. “This is only one of the serious flaws we see.”
“There are indicia that some of Asanko Gold’s resources models have been ‘smeared’, which would cause estimates of their ore contents to be inflated. Management is [also] outwardly assured and confident, but their behaviour reeks of desperation and short-termism.”
Asanko Gold fights back
Asanko Gold has reiterated prior disclosure regarding the strength of its gold mining business and pipeline of growth projects and strongly advised shareholders to disregard the short report issued by Muddy Waters.
Asanko Gold states that there is no merit to the negative assertions about the company in the report.
Asanko Gold has also reaffirmed plans for a 5 June 2017 release of its Expansion Definitive Feasibility Study that details the company’s organic growth pipeline and confirms the strong cash generating capability of an expanded Asanko Gold mine.
The study was prepared by internationally recognised independent qualified persons as required under Canadian securities laws.
“The Asanko Gold Mine is a robust business and we look forward to showcasing this during our 5 June presentation,” says Asanko Gold president and CEO, Peter Breese.
“The side wall issue was previously disclosed and has not materially impacted our ability to operate. We maintain our production guidance of 230 000-240 000 oz for 2017, which we continue to expect will generate between US$64-US$77 million in cash this year assuming $1,200/oz gold,” he continues.
“The short report has no merit and our upcoming Expansion Definitive Feasibility Study will by itself provide a complete rebuttal to Muddy Water’s technical claims and will also make other information available to refute the non-technical allegations.”
Importantly, Asanko Gold notes the following:
- As previously disclosed in its management discussion and analysis dated 2 May, 2017, there was no impact on either production or safety resulting from a partial failure on the western wall of the Nkran pit. Asanko has put various mitigation measures in place as part of its original mine plan. These mitigation measures include a dual ramp system, a slope stability radar and an on-surface ore stockpile in excess of 1.5 million tons, all of which have been instrumental in maintaining production. There is no merit to claims to the contrary by the short seller.
- As previously disclosed in its management discussion and analysis dated 2 May, 2017, the current pit bottom contains an inventory of pre-developed ore reserves of 166 000 oz of gold based on the new resource model by mining consultant CSA Global. This inventory will enable Nkran to meet its production plan through to the first quarter of 2018. During this period Asanko Gold is continuing with the mining of its scheduled push-back on the Western limb of the pit, which will facilitate continuous areas of ore supply into the future in line with Nkran’s life of mine plan. Accordingly, there is no need for a $115 million push-back expense, as speculated by Muddy Waters.
- Asanko’s president and CEO Peter Breese and chairman Colin Steyn have regularly purchased Asanko Gold shares and have not sold any Asanko Gold shares. The 2015 transaction referred to in the Muddy Waters report was nothing more than a change of indirect to direct holdings amongst shareholders within a private company.
As previously disclosed, Asanko Gold intends to provide a detailed presentation to analysts and investors immediately following the disclosure of the Expansion Definitive Feasibility Study.
The presentation is scheduled to take place in Toronto at 08h00 on Monday, 5 June, 2017. There will also be an accompanying conference call and webcast so that all investors can attend in real time.
Monday, 5 June, 2017 at 08h00 EDT
Belgravia Room, Omni King Edward Hotel
To attend, please arrive by 07h45 and RSVP to email@example.com
Feature image credit: Asanko Gold
(Asanko Gold’s Asanko gold mine in Ghana)