Three months passed since I last wrote about Asanko Gold (NYSEMKT:AKG), but the company’s share price is at exactly the same levels. For a higher-cost gold producer like Asanko, the increase in the price of gold should theoretically lead to more upside in the company’s shares, but this has not happened yet. The company has recently shared its Q4 production results for Asanko Gold Mine so investors and traders have a chance to look at what’s going on at the operational level.
In the fourth quarter, Asanko Gold Mine produced 66,112 ounces of gold, up from 62,440 oz in Q3 2019. All-in sustaining costs (AISCs) dropped from $1,179/oz in Q3 2019 to $969/oz in Q4 2019. However, the decrease in AISC was lower than previously expected, so the company’s full-year AISC came at $1112/oz, higher than the guidance of $1,040-1,060/oz.
The reason for higher AISC in the fourth quarter was an upper bench slippage in the western wall of the Nkran pit (Asanko Gold Mine is basically a collection of pits). Due to this, the company had to process lower-grade stockpiles which led to higher costs.
From the financial point of view, the quarter was successful for Asanko. The company benefited from lower AISC, solid gold price environment and a $10 million payment from Gold Fields (NYSE:GFI), its joint-venture partner in the Asanko Gold Mine. As a result of these positive developments, Asanko Gold finished the year with $35.5 million of cash and no debt. The cash position at the end of the third quarter was $13.6 million, so Asanko added $21.9 million of cash during the fourth quarter.
Asanko Gold will report its full-year results on February 13. However, the date for the most important catalyst, the updated life of mine plan for Asanko Gold Mine, is still unknown. The company’s press release stated that this plan was expected to be completed in Q1 2020. The most recent update on the life of mine plan stated that the company was targeting a life of mine of 8-10 years with gold production of 225,000-250,000 ounces per year.
At this point, it is clear that the market wants to see the updated life of mine plan before making its mind on the future of Asanko Gold shares. Financially, the situation is already looking good – AISCs are finally below $1,000/oz, gold is above $1,500/oz, and the company is generating positive cash flows. However, the recent slippage at Nkran is disturbing. The mine has chronically underperformed, suffering from various problems. Thus, the improved financial performance alone is unlikely to be sufficient enough to push Asanko Gold shares higher.
I see two ways how this situation can be played. The first option is to bet on Asanko Gold in the $0.80-0.90 range to get a decent price and then wait for the life of mine plan. The problem is that this plan carries significant headline risk since a disappointing life of mine plan could lead to a major downside move. The second option is to wait for the release of the life of mine plan and buy momentum above $1.10 (if the plan is satisfactory). I’d opt for the second option and wait until the release of the life of mine plan.
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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: I may trade any of the above-mentioned stocks.