West Africa has encountered a series of significant set backs recently, including the outbreak of Ebola and the dissolution of the Burkina Faso political framework. One place in West Africa that hasn’t been affected by either Ebola or political instability is Ghana. Fortunately for Asanko Gold (AKG:TSX), their two gold mines – which hold almost 11 million ounces – are located there.
This morning, Asanko provided an update on construction at their Phase 1 mine which is on track to pour first gold in Q1/2016 and ramp-up to steady state by the second half of 2016, producing over 200,000 ounces annually.
Investors were happy to hear the project remains on time and on budget. Shares were up ~9% on 1.3 million shares to close the day at $1.63, equating to a market capitalization of $285 million.
The Phase 1 mine was acquired in the merger with PMI Gold and hosts the higher grade portion of their two gold mines. The Nkran pit hosts the main ore body in Phase 1, containing 2.94 million ounces of gold (39Mt @ 2.34 g/t) in the Measured and Indicated category.
Construction for Phase 1 is 12% complete with pre-stripping at the Nkran pit expected to commence in early January.
The Nkran pit was previously mined to a depth of approximately 120 meters. It requires significant pre-stripping to access the higher grade ore below – over 21.7 million tonnes of waste must be stripped before full-scale mining can commence. Fortunately, in that 21.7 million tonnes of waste there is roughly 423,000 tonnes of ore at a gold grade of 2.09 g/t which will be stockpiled ahead of plant commissioning.
The company intends to use contract mining to pre-strip and for the first year of mining operations. Management expects to award the mining contract in the coming weeks.
Peter Breese, Asanko’s President and CEO commented: “It is very satisfying for all of our employees and stakeholders to see the Asanko Gold Mine taking shape with construction activity proceeding on schedule and on budget. The next key milestone for the Company will be the release of the optimized mine plan, updated mineral reserves and associated operating costs as a Definitive Project Plan for Phase 1. For the past six months the team has been working successfully at de-risking the Project with an updated capital cost estimate, a revised Mineral Resource Estimate and now the optimized mine plan and operating cost profile. We expect the DPP will re-affirm the value of the Project that we saw when we acquired PMI Gold earlier this year.”
Phase 1 is expected to cost $295 million to build and is expected to produce an average of 200,000 ounces of gold annually over a 11.5 year mine-life. At $1,300/oz gold that generates an after-tax NPV(5%) of $387 million and an IRR of 35%. At $1,200 per ounce gold, the economics are still robust with an after tax IRR of 22%. In fact, according to the feasibility study, the project only becomes uneconomic at $900 per ounce gold.
The Phase 2 mine, Esaase, hosts 94.63Mt at an average grade of 1.45 g/t containing 4.40 million ounces. Phase 2 is expected to be able to sustain an additional 200,000 ounces of gold production per year. It is located just 25kilometres from the planned Phase 1 plant location.
The company is finalizing an updated reserve statement with associated operating costs and revised project economics which will be compiled into a Definitive Project Plan. They hope to optimize the integration of Phase 2 and answer a few questions associated with the expansion plans including: whether or not Phase 2 will have its own plant, how the ore will be transported between the mines and what the scope of the expansion to Phase 2 will be.
In this study, they will also be updating the operating cost estimates for Phase 1, as they have done significant new resource modelling, metallurgical test work and processing redesign since their last PFS.
Management is guiding C1 cash costs for Phase 1 to be between $650 and $670 per ounce (slightly above the $626/oz cost from PFS). Due to the low capital cost nature of the project, All-in Sustaining Costs are estimated to be less than $800 per ounce.
The company is fully-funded to complete the build out of their phase 1 mine. Asanko has committed $85 million of the $295 million in total capex.
As of September 30th, the company had $228 million in cash on hand as well as undrawn project facilities of $130 million (including a $20 million cost overrun facility).
Management plans to release the Definitive Project Plan on November 13, 2014 and will host a webcast and conference call at 9:00am EST on the same day.
To access the conference call, please dial-in 10 minutes beforehand and quote “Asanko Gold”:
US & Canada Toll Free: 800 771 6916
UK Toll Free: 0800 528 0641
International: +1 415 226 5356