Recent uncertainty surrounds how the gold miner reported its reserves
SmallCapPower | July 19, 2016: Asanko Gold Inc. (TSE:AKG) is a gold junior that seemed to have been doing everything right. Yet, a Toronto-based hedge fund recently questioned the calculation of the Ghana gold miner’s resource. Asanko has yet to issue any news in response to these claims, so the release of its second-quarter production and conference call on Wednesday, July 20, 2016, should be an event of great interest to its shareholders.
Asanko Gold’s flagship project is the Asanko Gold Mine located in Ghana, West Africa. Commercial production was declared on April 1, 2016, and the Company expects to ramp up its output to 190,000 ounces per annum by Q2 2016.
On June 29, 2016, the Financial Post reported that K2 & Associates Investment Management alleged that Asanko’s gold resources “don’t add up” and appear to be over-inflated by a factor of two. It must be noted that K2 has a short position in Asanko and, thus, has much to gain if the Company’s stock price were to fall.
K2’s primary concern was with Asanko’s Nkran deposit, which previous owner, Resolute Mining Ltd., said the ore zones become “thinner and more discontinuous” deeper underground, whereas Asanko’s reserve estimate implies that they “expand dramatically.”
K2 claims the Company’s current resource estimate contains (roughly six times) more gold ounces than the previous miner’s stated resources before they forfeited the asset, and believes Asanko will struggle to meet the production estimates in its plan, and will have to reduce its reserves.
In the Financial Post article, Asanko Gold spokeswoman Alex Buck completely refuted the claims made by K2.
The Company’s stock price fell about 5% following the article’s release but has since recovered nearly all of those losses, suggesting that the market is playing a ‘wait and see’ game before making any final decisions. Expect Asanko to be upbeat in any guidance going forward in response to these claims.
Nonetheless, the questions over the Nkran deposit will have to be addressed during its conference call on Wednesday in a manner that leaves little doubt as to how the calculations were obtained. Otherwise, Asanko shares will likely underperform the gold sector as a whole.
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