Asanko Gold (TSE:AKG) should be a focus for investors seeking a strong gold project with low financing risk, says Jennings Capital analyst Dan Hrushewsky in morning comments Thursday, after meeting with company management at the Denver Gold Forumin Colorado.
Hrushewsky took special note of the company's large cash position, in addition to sizable project with "good grades and continuity", as well as "intriguing exploration potential and good jurisdiction".
The comments by the analyst were prompted after an update on Asanko's Esaase project in Ghana was given to him by CEO Peter Breese and CFO Greg McCunn at the forum.
The environmental impact statement was submitted by the company just this month, as Asanko worked with the Ghanian government to ensure that the version submitted would have no potentially contentious issues, as significant changes would require a revision to the definitive feasibility study, which is underway currently, and is expected for release in the fourth quarter. The environmental permit is also expected in the fourth quarter.
In the definitive study expected this November, cost figures by and large are expected to come close to those included in the pre-feasibility study. The Jennings analyst estimates that capex may come in slightly lower than the original $290 million figure, while operating costs should be in the same $730 per ounce range.
"There is currently some uncertainty on the route the company will take regarding power, as the Ghanian government has come back with a more competitive hydro-electric power cost proposition after learning of AKG’s plan to self-generate power," wrote Hrushewsky in the morning note.
With cash on hand of US$190 million, the balance of funding for the project is expected to be around $150 million, which does not include a potential $37 million funding from the exercise of 9.4 million in warrants expiring in one year, at a strike of $4.00 a share.
From his conversations with management, the analyst said that Asanko is pursuing two tracks regarding funding, with the first being traditional bank financing, while the second avenue consists of a single "non-traditional" lender. Benefits of using this latter funding source, says the analyst, are that no hedging, no cash sweep and M&A restriction provisions would be required, while drawbacks consist of a 150 basis point higher interest rate, and some warrants and other requirements on a $20 million overrun facility. Both of these facilities are expected to be finalized by the end of the year, with the company expected to benefit from the increased favourable loans made by South African banks to mining projects.
Asanko is also pursuing the opportunity to act as a consolidator in Africa with its M&A strategy, and as such has been in discussions with various parties over the last year or so.
"AKG noted that in the last three months it has noticed an improvement in the willingness of target company management to engage in M&A discussions," the analyst wrote. "AKG confirmed it would not imperil its cash position in this regard, but would only consider all share transactions."
Hrushewsky still sees the key to Asanko as its focus on improving project parameters at Esaase, which should result in better economics, as well as a resource to reserve conversion ratio than that used in the prefeasibility study. The company is planning to achieve this by using the lower cost figures that were not included in the preliminary study due to time constraints, as well as increasing the processing rate in the early years, and decreasing the mass pull of the flotation circuit through optimization.
According to the analyst report, investors can expect the release of the definitive feasibility study in the fourth quarter, as well as upcoming project financing and steady state production sometime in 2015 to act as future catalysts for the mining company's stock price, which currently sits at $2.41 in Toronto.
Jenning's Hrushewsky has a buy recommendation on the Vancouver, British-Columbia-based development company, with a 12-month price target of $4.75.