Precious Metals

Haywood Securities analysts rated the company a “buy” with a price target of $3.60 in a note following the release of the news.

With gold output of 85 metric tons (MT), Ghana was both the world’s 10th-largest producer of the metal last year and Africa’s second-biggest producer.

Given those impressive statistics, investors might be surprised to learn that the country’s gold industry is not exactly thriving. Case in point: after producing an impressive 100 MT of gold in 2011, up from 82 MT in 2010, Ghana put out 87 MT in 2012 and, as mentioned, 85 MT last year.

The reason for the decline is tied to last year’s dramatic gold price drop. Ghana is home to many artisanal miners who eke out a living mining gold from small plots and then selling it to local buyers. However, as the BBC reported at the end of last year, lower gold prices have made it difficult for such miners to continue their work.

Kwaku Boham, one such miner, told the news outlet, “[t]hese days all the prices fall down. These days this job is not good, it’s not like the olden days.”

A government crackdown on illegal mining also hasn’t helped. “The gangs that used to bring the [gold-containing] soil from the bush, these days they don’t bring it because the government has cracked down on them. So, the amount of gold we get now is not enough,” said Boham. He added, “[t]he future for us is uncertain.”

Asanko starts construction

Though artisanal miners are struggling, mining companies are still enjoying success in Ghana. Indeed, this past month both Perseus Mining (TSX:PRU,ASX:PRU) and Golden Star Resources (TSX:GSC) have released encouraging news about their work in the country.

Most recently, Asanko Gold (TSX:AKG,NYSEMKT:AKG) announced that the main construction work has started on Phase 1 of its Asanko gold mine. This first phase is based on the construction of the Obotan gold project, while the second and last phase, for which a scoping study is currently underway, anticipates the inclusion of the Esaase deposit, which is adjacent to Obotan.

Commenting on yesterday’s news, President and CEO Peter Breese said it is an “important milestone” for Asanko, an understandable description given all the work the company has done to get to this point. Just this year, Asanko’s work at the site has included upgrading the access road, refurbishing the operations camp and upgrading site utilities.

In terms of what’s going on at the moment, the company’s press release states that it has started clearing ground for a gravity/carbon-in-leach processing plant, while “[t]he bulk earthworks contract has been awarded and the contractor has mobilised to site.” In the next few months, civil works and concrete pouring should begin.

Looking longer term, project milestones include:

  • Completion of a definitive project plan, including an updated mineral resource estimate, by Q4.
  • Commissioning and ramp up in Q1 2016.
  • Steady state production of 200,000 ounces per year by 2016′s second quarter.

Market reaction

Of course, the real question is how the market reacted to Asanko’s news.

Though the company’s share price didn’t see much movement following the news, rising just $0.05, to $2.65, following its release, it brought a positive reaction from analysts at Haywood Securities. They said in a note released today that they rate Asanko a “buy” with a target price of $3.60, identifying three key points working in its favor:

  • Together, Obotan and Esaase hold 4.92 million ounces of gold in proven and probable reserves, “allow[ing] for an extended mine life (11 years) that could grow if conditions allow for the integration of further resources into the production plant.”
  • The mine’s “[e]xploitability by open-pit mining and two processing circuits” will facilitate “relatively simple mining and processing flexibility.” Furthermore, because material from Obotan and Esaase will ultimately be integrated, there is “processing and mining optimization potential.”
  • Asanko has a “sizeable cash balance” of around US$231 million as of two months ago, which means it is a “relative defensive option.”

That said, the analysts caution in their note that Asanko is a high-risk investment as it’s just starting construction. The biggest risks associated with the company are “protracted construction,” which could lead to delays in generating cash flow, and “lack of capex and opex synergy.”

Investors will have to decide for themselves whether the potential rewards outweigh the risks. In the meantime, the Haywood analysts’ comments provide some food for thought, while Asanko has identified numerous upcoming catalysts to watch for moving forward.

At close of day today, shares of Asanko were selling for $2.55 each.


Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article. 

Related reading: 

Gold Mining in Ghana

Perseus Mining Weathering the Storm in Ghana

Golden Star Resources Continues Drilling Success at Wassa Gold Mine, Ghana



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