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Tuesday, 14 May 2013
Asanko Gold offers improved economics for Esaase project as it moves to become low-cost, mid-tier producer
Asanko Gold (TSE:AKG) (NYSE MKT:AKG) has taken the next step toward advancing its Esaase gold project in Ghana to production by announcing stellar projected economics that would withstand even fallen gold prices, and is already on its way to the next stage of development.
The company, which is focused on maintaining a low-cost operating environment, said the pre-feasibility report shows a net present value, at a 5 per cent discount rate, of $354.7 million, along with an after-tax internal rate of return of 23.2 per cent, using a base case gold price of $1,400 an ounce.
Average annual free cash flow, for the estimated mine life of 10 years, is projected at $87 million, with the company saying the life of the mine has the potential to increase even further, while average annual cash flow is still pegged at $65 million using a $1,200 an ounce gold price.
Chief executive of Asanko, Peter Breese, joined the company in October last year, and brought a team of "highly seasoned" executives that he says focused on capital efficiency at Esaase, as well as on lowering operating costs and “fine-tuning” the metallurgical flow sheet from the pre-feasibility study the company announced in September 2011, when it functioned as Keegan Resources.
"The whole design of the mine is fundamentally different, and our operating costs are much lower and far better than originally envisaged," says Breese, who has more than 25 years of operational mining experience in Africa and Australia, having been the CEO of Mantra Resources prior to its $1 billion acquisition by ARMZ.
Life-of-mine cash operating costs, which exclude royalties, are projected at $736 an ounce, with operating costs at a "steady-state" of output of $724 an ounce.
Total cash costs over the life of the mine, which include mine production, transport and refinery costs, general and administrative costs, movement in production and ore inventories, and royalties, are pegged at $813 an ounce, with steady state costs of $801 an ounce.
All-in sustaining costs, defined as total cash costs plus sustaining and deferred capital expenditure, are estimated at $843 an ounce pre-tax, or $990 an ounce after tax.
Meanwhile, installation capital, including a 10 per cent contingency, is seen at $286.4 million, for an operation with average annual gold production of 200,000 ounces, processing 5 million tonnes of ore per year at a fully diluted average plant feed grade of 1.41 grams per tonne gold (g/t).
The study is based on the October 2012 mineral resource estimate of 4.41 million ounces of gold in the measured and indicated category and resulted in 2.37 million ounces of resources being converted to proven and probable reserves. This was based on a mine plan that was developed using Whittle mine optimization software, and applied life-of-mine modifying factors that were estimated during a project review update last September.
But Breese says that since the scoping study, or project review update last year, a number of improvements have been made to the modifying factors, including operating costs and gold recoveries during the pre-feasibility study.
"The factors going into the Whittle pit are fundamentally better than they were before, including a 40% reduction in plant processing costs and deeper sections of the ore body that can be included in the mine design, and as a result we expect a decent improvement in the mine life for this project," the chief says.
He adds: "Through a metallurgical test work program, we are also looking to further optimize capital and operating costs going forward by lowering the mass of the material going through the float plant.”
The company is starting a definitive feasibility study – the next step in the development process that will include the improvements in the modifying factors in a detailed mine design – immediately, and is expected to wrap up sometime in the fourth quarter of this year.
Breese projects an 18-month construction period for the site, with first gold anticipated in the first half of 2015, and steady-state production in the second half of that year.
Currently, the flow sheet for the project envisages flotation, a gravity recovery circuit, followed by concentrate regrinding and a standard carbon-in-leach circuit, typical in the gold processing industry.
“Ghana is a well established mining region, and is rather straightforward in terms of permitting, unlike a lot of other African countries,” says Breese, adding that Ghana has been engaged in over 100 years of mining, and is the second largest gold producer in Africa.
The permitting process for Asanko’s Esaase project is expected to wrap up before the end of this year, as the company expects to lodge the draft environmental impact statement (EIS) to the Ghanaian Environmental Protection Agency (EPA) in the coming weeks.
“The public hearing run by the EPA was held last week and was very successful, giving us the clear to start the formal permitting process.”
Along with working in an established, mining-friendly environment in Africa, Asanko is also unlike its peers in the fact that it is well funded – in a time when junior exploration companies are struggling to make ends meet as capital runs dry in Canadian markets. At the end of March, the company had $197 million in its coffers, leaving it on the hook for another $100 to 150 million, for which negotiations with various banks are well underway.
Indeed, Breese says he expects the project to be fully funded by the fourth quarter, having already advanced discussions with financial institutions.
Looking ahead, the CEO affirms that the company’s main goal is to be a low-cost, mid-tier gold producer, with its operating costs now sitting in the middle of the range. “Our job is to make sure we maintain a very efficient cost base, and that is exactly what my team has always done, and something we’ve always been successful at.”
His team boasts COO Tony Devlin, who was most recently managing director of Mantra Tanzania, and has held executive management positions for Anglo American, as well as managing director Ben Adoo, who was previously managing director of Ghana Bauxite, a subsidiary of Alcan.
“I believe the gold market will continue to be robust, but our job is to worry about how we spend our capital. At $1,200 an ounce, we still make $65 million a year in cash, meaning the price has to go down a hell of a long way before we are in trouble – illustrating just how strong our project is.”
Early works at the 210-sq km Esaase project, which is located 35 km southwest of the regional capital of Kumasi, are on pace for the fourth quarter of this year, when the company will look to take advantage of the dry season that runs from November to March in Ghana.
With a target of 200,000 ounces a year of gold production before the end of 2015 from the site, Asanko is also looking to bulk up its assets in its bid to become a mid-tier gold producer. “We believe there are several hundred juniors on the TSX Venture that will fall apart in the next year because they won’t be able to raise the capital they need, but some of them have some pretty decent assets.”
“Our immediate focus is to get Esaase up and running of course, but at the same time, we will be evaluating advanced gold assets.”
Asanko Gold, with a market cap of more than $200 million, closed Monday at $2.38 on the Toronto Stock Exchange.