Asanko Gold Inc. (TSX, NYSE American: AKG) has reported first quarter (“Q1”) 2019 operating and financial results for the Asanko Gold Mine (“AGM”) located in Ghana, West Africa.
Asanko is a 50:50 joint venture (“JV”) with Gold Fields Ltd (JSE, NYSE: GFI), which is managed and operated by Asanko.
Q1 2019 Asanko Gold Mine highlights (100% basis):
• Produced 60,425 ounces of gold, on track to meet 2019 guidance of 225,000 – 245,000 ounces
• Generated EBITDA of $10.1 million and operating cash flows before working capital changes of $10.5 million
• Held unaudited cash of $16.3 million on hand, $7.1 million in receivables from gold sales and $7.1 million in gold on hand, as of March 31, 2019
• All-in sustaining cost (“AISC”) of $1,123/oz, with 2019 guidance of $1,040 – $1,060/oz maintained
• Net loss after tax of $14.1 million including a loss of $13.3 million associated with adjustments to the carrying value of ore stockpile inventory
Q1 2019 Quarterly Consolidated Financials for Asanko Gold Inc.
• Net loss of $5.3 million including proportional adjustment to net realisable value of the ore stockpiles at the AGM of $6.0 million
• Adjusted EBITDA of $3.1 million
• Held $8.8 million in cash as of March 31, 2019, with the final $20 million cash payment related to the Gold Field’s transaction expected no later than December 31, 2019.
Commenting on the Q1 2019 performance, Greg McCunn, Chief Executive Officer, said: “The Asanko Gold Mine delivered a solid operational performance producing 60,425 ounces, in line with our guidance for 2019. Costs for the quarter were impacted by higher trucking costs as we initiated mining operations at the large scale Esaase deposit. Commercial trucking contracts are now in place and we expect oxide ore from Esaase to represent 25-30% of the mill feed on an ongoing basis. In addition, we continued with the waste stripping of Cut 2 at Nkran. This is nearing completion and as the pushback comes to a conclusion in Q3, we forecast AISC to decline and maintain our full-year AISC guidance of $1,040 – $1,060/oz.
After a thorough review of our current operations in my first month as CEO, I can see that we are in the final stages of a two year capital investment program, which included a mill expansion from 3Mtpa to 5Mtpa, a major pushback of the Nkran pit and the initial development of Esaase.
We are now well-positioned to start harvesting the benefits of these major investments as we shift our focus to maximising cashflow generation from the AGM over the next 18-24 months while we work with our JV partner on formulating the long-term development plan for Esaase and optimal life of mine plan for the AGM complex.”
Key Operational Highlights of the AGM (on a 100% basis)
• No lost time injuries (“LTI”) were reported during the quarter, and the AGM has now achieved over 24 months and more than 12.3 million employee hours worked without a single LTI.
• Waste stripping of the Cut 2 pushback at Nkran advancing towards final stages, expected to be complete in Q3 2019.
• Achieved steady state levels of production at Esaase in February 2019, with ore mining rates averaging 147,500 tonnes per month over February and March at an average grade of 1.3 g/t.
• Trucking costs for the quarter were elevated as contractors at Esaase transitioned from road construction activities to ore haulage activities. Effective April 1, 2019, commercial contracts in place and ore haulage costs expected to reduce to planned levels of $7.00-$7.50 per tonne hauled.
• Notice of the JV’s intention to halt mining activities at Akwasiso was initiated during the quarter.
JV Financial Performance
• The AGM incurred operating cash costs per ounce1 of $878, total cash costs per ounce1 of $943 and AISC1 of $1,123 in Q1 2019. These costs include a $248/oz impact associated with adjustments to the carrying value of ore stockpile inventory and a $32/oz impact due to the Ghanaian Government’s 5% non-refundable levy on certain goods and services.
• Cash costs were higher in Q1 2019, compared to Q1 2018, partly due to fewer waste tonnes being capitalised to stripping costs. During the quarter, only $2.9 million of stripping costs were deferred compared to Q1 2018 when the Eastern portion of Cut 2 at Nkran was underway, which resulted in $26.1 million of stripping costs being deferred and excluded from cash costs.
• Cash costs for the quarter were also impacted by unusually high trucking rates at Esaase as contractors were transitioning from road construction activities to ore haulage activities. These factors were partially offset by higher gold sales volumes which decreased fixed production costs on a per unit basis.
• AlSC for Q1 2019 were lower compared to Asanko’s AISC for Q1 2018 predominantly due to a $479/oz reduction in capitalized stripping costs, associated with the Eastern portion of Cut 2 at Nkran, and higher gold sales volumes which decreased fixed costs on a per unit basis, partly offset by the previously described higher cash costs. While there are no comparative AISC metrics reported for the AGM on a standalone basis in Q1 2018, Asanko’s AISC for Q1 2018 included corporate G&A costs of $33/oz.
• Q1 2019 gold sales of 53,421 ounces at an average realized gold price of $1,292/oz generating gold sales of $69.0 million. Gold sales were impacted by a change in the reporting period, which shortened the quarter to 83 days instead of the normal 90 days. This is a once-off timing adjustment. Revenue in Q1 2019 amounted to $67.0 million and includes by-product sales of $0.2 million and is reported net of $2.2 million of gold sales that were capitalised in relation to Esaase pre-production activities in January 2019.
• Total cost of sales (including depreciation and depletion and royalties) amounted to $78.9 million, an increase of $34.0 million from Q1 2018. The increase in production costs was primarily driven by an adjustment to the carrying value of the AGM’s stockpile inventory to reflect the net realisable value of stockpiled ore, a one-time contract termination fee relating to one of the JV’s mining contractors, the introduction of ore trucking from Esaase to the processing facility, as well as higher gold ounces sold. Additionally, depreciation and depletion during Q1 2019 accounted for $10.1 million of the increase in cost of sales, compared to Q1 2018, primarily due to the depletion of mineral interests related to Esaase, which commenced commercial operations in February 2019, while depreciation of right-of-use assets commenced in Q1 2019 following the capitalisation of mining contractor leases in accordance with IFRS 16 – Leases.
• Generated cash flow from operations of $8.8 million and $10.5 million before working capital changes.
• The JV generated EBITDA1 of $10.1 million in Q1 2019.
• The AGM’s net loss after tax for the quarter amounted to $14.1 million, compared to net income of $4.7 million in Q1 2018. The reduction in net income was due mainly to lower mine operating earnings in Q1 2019 as discussed above, partially offset by a reduction in deferred income tax expense and interest expense, the latter resulting from the settlement of the Red Kite debt in July 2018.
• At quarter end, the JV had unaudited cash of $16.3 million on hand, $7.1 million in receivables from gold sales and $7.1 million in gold on hand.
• The Company reported a net loss of $5.3 million in Q1 2019 compared to net income attributable to common shareholders of $2.1 million in Q1 2018. The reduction in net income for Q1 2019 was predominantly the result of the reduction in mine operating earnings of the AGM, resulting in the JV reporting a net loss of $14.1 million, of which the Company recognised its share of $6.4 million. This was partly offset by the recognition of $1.1 million in service fees (net of withholding tax) earned as operators of the JV and $2.4 million of finance income relating to the fair value adjustment of the Company’s preferred share investments in the JV.
• Reported Adjusted EBITDA1 of $3.1 million for Q1 2019 compared to $30.9 million in Q1 2018. The decrease in Adjusted EBITDA1was primarily a result of the higher cash costs incurred by the AGM, as well as a reduction in the Company’s interest in the AGM from 100% to 45%. These factors were partly offset by an increase in the AGM’s revenue.
The Asanko Gold Mine is on track to meet 2019 guidance of 225,000 – 245,000 ounces at AISC1 of $1,040 – $1,060/oz.
Since the announcement of the JV transaction, Asanko’s technical team, together with input from Gold Fields, have been reviewing the current Life of Mine plan. This includes a number of scenarios for the long-term development of the Esaase deposit, utilising knowledge gained from the recent initiation of mining operations, as well as the exploration potential of the AGM’s land package, particularly the highly prospective South Camp tenements. The JV partners are currently considering an optimal work plan and timing required to deliver an updated Life of Mine plan for the AGM and expect to update the market further in H2 2019.