This year so far has been a great one for Asanko Gold (TSX: AKG; NYSE-MKT: AKG). In January, the company kicked off first production at its namesake gold mine in Ghana, followed by commercial production in April, a quarter ahead of schedule, with its shares surging 71% since the end of 2015.
Phase one at the Asanko gold mine reached commercial production on April 1, three months earlier than expected, marking a “fantastic achievement by our team,” CEO Peter Breese stated. The team also completed the US$295-million construction, which started in August 2014, within budget.
“This represents a milestone,” Raymond James analyst Chris Thompson says. He has a $3.80 target and an “outperform” rating on the stock, which last traded at $3.48.
Ramp-up at the mine will continue during the second quarter, as workers access the main ore zones in the Nkran pit until the end of June, with steady production expected soon after.
The first phase involves mining Nkran and four satellite pits that altogether comprise the Obotan project, at 190,000 oz. a year, before expanding to include the Esaase deposit in 2018. The company has yet to make a development decision on Esaase.
By the end of March, phase one produced and shipped 15,337 oz. gold and 2,860 oz. silver, with another 6,200 oz. gold locked up in the milling facility.
Asanko sold a total of 8,710 oz. gold at an average US$1,211 per oz. for US$10.6 million, helping it turn cash-flow positive in March, BMO analyst Andrew Breichmanas writes. He has a $4 target and “outperform” rating.
In March, mill throughput surpassed capacity by up to 25%, with average rates of 8,908 tonnes per day, or 11% above design. Power consumption in the semi-autogenous and ball mills are lower than expected, helping the plant run more material through the mills at a lower cost per unit, the company says. Key reagent consumptions are at or below design, while gold recoveries are exceeding expectations. In the last two weeks of March, gold recoveries were 94%, versus a 92% design.
CIBC analyst Jeff Killeen, who bumped his $2.85 target to $3 per share, says higher recoveries will “likely persist on a go-forward basis.”
Asanko intends to increase mining through the second quarter to fill the extra capacity at the plant. It plans to stress-test the mills up to 12,000 tonnes per day.
Meanwhile, the Nkran pit’s pushback continues, with 28 million tonnes mined since operations started in early 2015. However, Asanko notes the pit is under pressure to deliver ore to the milling facility, which started six weeks early and ramped up to design throughput rates three months faster than anticipated.
To meet this demand, Asanko has bulk-mined to get to the main ore zones faster. As a result, it has mined lower head grades, with higher dilution and gold losses than planned. It expects to continue mining lower grades in the second quarter until it exposes Nkran’s main ore zones. After this, the grades should increase to match phase one’s average reserve grade of 2.15 grams gold per tonne. (Reserves total 36.7 million tonnes at 2.15 grams gold for 2.52 million oz.)
Asanko is guiding gold production of 35,000 to 40,000 oz. in the second quarter, and 90,000 to 100,000 oz. in the second half, as it reaches steady production.
Including Asanko’s first-quarter production, this would bring expected annual production to 140,000 to 155,000 oz. This is in-line with Raymond James’ 142,000 oz. forecast, but below the 182,000 oz. outlined in Asanko’s 2015 phase-two expansion plan prefeasibility study, due to the lower grades mined, Thompson writes.
The company exited March 2016 with US$72 million in its treasury, and a $2.76 share price. It recently closed at $3.48, up 71% since ending 2015 at $2.03.