- Asanko Gold's board recently announced its intention to move forward with the development of its Asanko Gold Project in Ghana.
- This was anticipated in my January article under the assumption that the gold price didn't crash.
- While this reaffirms my thesis, the stock has risen considerably and the company has burned through some cash, making the risk reward less favorable, but not unfavorable.
Asanko Gold's (NYSEMKT:AKG) board has decided to go through with the development of its flagship Asanko Mine in Ghana. The project is fully funded through production (est. $295 million) given its $230 million in cash/equivalents and its financing agreement with Red Kite Capital. The company expects that construction will begin shortly and that commercial production will begin in Q1 of 2016.
This is largely in-line with my January investment thesis, in which I claimed that I expected the Asanko Gold Mine (then called the "Esaase" and "Obotan" mines) to move forward with construction and production following this basic timeline. However investors should note that a couple of things have changed since then. First, the company's cash hoard has declined $50 million from $280 million. Second, the mine's initial capex expense estimate rose from $285 million to $295 million. Third, the stock is up 56%. Fourth, the gold price has risen about 6%.
The first three points are all bearish although they are countered by the last point, which is bullish. It follows that the company doesn't have nearly as much upside as I initially laid out, but it offers tremendous leverage to the gold price. For instance at $1,750/oz. gold and with these updated considerations the stock has upside potential of 218% at an 8% discount rate (vs. my initial upside target of about 418%) and 140% at a 12% discount rate (vs. my initial upside target of 297%). These figures aren't nearly as impressive, but keep in mind that we are just 33% away from $1,750/oz. gold, which means that there is still substantial leverage remaining.