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11/9/17

Asanko Gold (AKG): The managerial bullshit now smells so strong that...

...even sellside brokerage analysts cannot ignore the stench any longer. It wasn't even two months ago when the CEO of Asanko, Peter Breese, stood up in front of the audience at the Denver Gold Show and said this (exact quote):
“We published a very robust feasibility study to grow this company from circa 220,000 ounces a year to 450,000 ounces a year at the end of May, or, beginning of June.  And at the time of the publication of that Feasibility study we were under sustained short attack, so we’ve sat back and said to ourselves, and as Tara said we’re a topic of conversation amongst the investing public, we said to ourselves, what do we do about this? You know we, as a team have built perhaps 15 mines around the world over the last 30 to 40 years, and we said well there’s only one way to sort out the short attacks and that’s to show them that they’ve picked on the wrong people.  So we are looking very clearly at focusing on operational delivery.”
It's an interesting document, that Feasibility Study published by Asanko and quoted by its CEO, because it's quite clear that AKG's boss is now hoping that nobody has bothered to open it and read it. Sorry Peter, you're out of luck. In that FS AKG forecast the following production:

2017: 242,042 oz Au
2018: 267,943 oz Au

With me so far? Good, because the first thing we need to know is that AKG is lagging massively behind its own FS expectations. We won't know until the end of the year of course, but as the company produced a total of 153,497 oz gold in the first three quarters of 2017 it's a fair guess they're going to come in around 205,000 oz to 210,000 oz. In other words, a big miss compared to the FS that Breese quoted so merrily a few weeks ago and if they're lucky, AKG will squeeze into the bottom end of the 205koz to 225koz range they revised downwards after the 2q17 earnings.

Now we skip to the news today. They said nothing about this just two weeks ago on earnings and ConfCall day, suddenly on the back of an analyst and investor site visit to their operations AKG has released this document and everso everso sneakily, on page 13, they stick in another production downgrade:

2018 Mine Scheduling Dynamics

• Nkran

• Practically, the deposit is limited to 3Mtpa rates

• Always anticipated cyclical ore yields

• Geotechnical redesign of oxides slopes have added waste strip ~4Mt

• Currently 50% through the pushback investment Cut 2, this continues through 2018

• Oxide reserves - 1.3Mt reduction in available oxide ore tonnes planned from Akwasiso & Dynamite hill

• Granites - Restricted throughput rates due to high Bond Work Index

• Multiple Ore Sources

• Nkran

• Akwasiso established June, limited oxides, 50% granites, 1.5 g/t grade, but with some 2 g/t areas

• Dynamite Hill establishing currently, +2Mt ore with 500,000t oxides @ 1.5 g/t

• Stockpiles (3Mt @ 1.1 g/t)

Implications

• All ore sources required to meet the 5Mtpa feed requirement

• Stockpile feed required to offset oxides reductions

• Mill feed grade consistent with reserve grade ratios

• Bond work index – granites blended at limited rates into feed

• 2018 production expected to be similar to current 2017 range

There is so much to love in that bullet point mess it's difficult to know where to start, but let's go with the last bullet. Ottotrans time! "Oh, by the way...remember that 267k oz gold we said we'd produce in 2018....errr, it's 210k max now". Or how about gobbledygook such as "Geotechnical redesign of oxides slopes have added waste strip"? Stick that through the Ottotrans and you get "The short attackers are right, our pit walls are farked and strip rates are going even higher, so don't expect those ounces to do anything like make a profit now, yeah?" And yes sir yes madame, you are correct in pointing out to me that this is the company with a crapload of financial debt to pay back from....errr....its cash flow.

Which brings me to the sellside anal yst reference in the top sentence, because AKG may still be able to pull the wool over the eyes of your average sellside dumbass in a suit but the sharper ones have started to work it out. Step forward and take a bow Jeff Killeen of CIBC who wrote in his AKG update report today:
"Asanko has unexpectedly reduced 2018 production guidance through release of an updated site visit presentation. The deck suggests 2018 production will be similar to the 2017 range (205koz-225koz), which is materially below our estimate of ~246koz and well below the Q2/17 technical study that guided for ~267koz in 2018. Adjusting our model, we see a negative ~14% impact on production and an ~18% impact on our 2018E CFPS."
And ends the note with a flourish, too:
With potential for further negative reserve revisions on the horizon and operational performance issues to date, we continue to expect AKG shares to underperform.

Correct, Mr. Killeen. Way past time that the serial BSsers get called out by the Canadian brokerages so well done you. My only beef with your note is that you have a CAD$1.00 price target on the stock, as that's precisely one Loonie too high.