Asanko Gold (TSX: AKG; NYSE-MKT: AKG) has started gold production at its namesake mine in Ghana, becoming the newest mine in the West African country.
The Asanko gold mine poured 400 oz. in its first phase on Jan. 26, a month ahead of schedule and within budget.
The first gold pour is a “milestone” in the commissioning phase as the mine moves towards commercial production, Raymond James analyst Chris Thompson writes.
Asanko is ramping up to steady production at a rate of 190,000 oz. a year. Peter Breese, Asanko’s president and CEO, stated he’s “confident” that the mine will reach commercial production in the second quarter.
After thanking stakeholders — including Ghana’s government, which will have a 10% free-carried interest in the mine upon commercial production — Breese praised his team and engineering, procurement and construction management contractor DRA Global for delivering phase one within 18 months.
BMO analyst Andrew Breichmanas applauded Asanko’s management team for delivering according to plan, adding that the stock is one of his preferred precious metal names.
Construction for phase one — budgeted at US$295 million — kicked off in August 2014.
The Asanko mine will exploit six open-pittable deposits stretched over a 30 km trend. During phase one, ore from the main Nkran pit, supplemented with feed from four satellite pits — Adubiaso, Abore, Asuadai and Dynamite Hill — will supply a 3-million-tonne-per-year carbon-in-leach (CIL) plant. Together the five pits make up the Obotan project.
Asanko has commissioned the processing facility with low-grade stockpiles ever since DRA Global handed over the crusher in mid-December. It notes that the SAG and ball mills match or exceed design throughputs of 8,300 tonnes per day.
Mining at the Nkran pit continues, removing more than 22 million tonnes to date. Over the next month, Asanko expects that gold inventory in the CIL circuit will build up to full production levels. It says grade control drilling should line up with the definitive project plan for phase one, released in November 2014.
Assuming a US$1,300 gold price, phase-one output should total 2.34 million oz. over a 12.4-year mine life, based on reserves of 2.5 million oz. from 36.7 million tonnes grading 2.15 grams gold per tonne. It should churn out 190,000 oz. annually.
“Phase one has all-in sustaining costs of US$781 per oz … so it is a robust project, even in a sub US$1,000 per oz. gold-price environment,” Alex Buck, Asanko’s manager of investor and media relations, said in an email.
Asanko intends to expand the mine to lower costs and increase annual production, and published a positive prefeasibility study for phase two in May 2015. The expansion would include Asanko’s sixth pit, Esaase, with reserves of 2.7 million oz. from 60.3 million tonnes at 1.41 grams gold, to create a large, multi-pit mine.
The combined mine should crank out 411,000 oz. gold annually over 10.5 years, starting in 2018. Phase two should take 18 months to build at an estimated US$270 million. It requires adding a 5-million-tonne-per-year flotation plant alongside the CIL plant, which Asanko will upgrade and increase to 3.8 million tonnes a year by adding two more CIL tanks, so it can blend the oxide ores from Esaase with feed from the phase-one pits.
The combined project, using a US$1,300 per oz. gold price, yields a 27% after-tax internal rate of return with a US$770-million net present value (NPV) at a 5% discount rate. The study says it generates US$147 million in NPV savings including US$92 million in life-of-mine synergies, compared to Esaase’s stand-alone development option.
Asanko will release a definitive feasibility study for phase two in the second quarter. “A development decision will depend on a number of factors, including permitting, the gold price, near-term market outlook and access to capital,” Buck says.
Raymond’s Thompson anticipates Asanko will delay phase two until mid-2017. Asked about the possibility of a delay, Buck said the company is not “chasing growth for growth’s sake,” and that all growth and expansion projects need to meet internal hurdle rates.
The junior is well funded, with a US$116-million cash balance at the end of 2015. “We continue to see appeal for fully funded emerging producers,” BMO’s Breichmanas says.
The stock closed Jan. 27 up 7¢ at $2.08, within a 52-week trading window of $1.59 to $2.55.
Thompson has a $2.50 target price, while Breichmanas has a $3 target. Both analysts rate Asanko as “outperform.”