Mo' Asanko (from IKN373)

Last week we did Asanko here and we did Asanko here, too. In the weekly on Sunday we got a little more detailed. Here is that Sunday piece:

Asanko Gold (AKG): Its short attack and the company response

On the blog last week we documented the unfolding short attack story around Asanko Gold (AKG), first by offering up the link to the K2 Associates report critical of the company and saying there’s a potential 90% downside on the stock price (21), then by noting that AKG had apparently held a non-public conference call with anal ysts sympathetic to its cause, which is naughty according to the rules (22). I invite you to catch up on the doings and dealings via those two posts, what I want to elaborate on follows on from the AKG conference call.

Well in fact that should be callS, because I’ve now learned that Asanko last week held not one but two private, off-record Conference Calls with analysts and funds that cover or own AKG. And what’s interesting is that IKN has learned that even people who are “pro-Asanko” and were invited to participate came away with the feeling that they hadn’t been told the whole truth. Under the circumstances, that of a private (and probably rule-breaking) CC convened to debunk the shorters and refute arguments, the lack of clarity on certain issues didn’t go down as well as AKG might have wanted. The specifics tend to get down into the nitty-gritty of the K2 Associates arguments against AKG so to get the full picture you’d need to read their hit piece first, but I’m going to take those as read and provide a simple list. According to IKN sources:

• AKG said that K2 Associates did not include drill data beyond 2010. That’s false, as anyone reading their literature and support documents can easily see.

• K2 raised issues about the projected strip rates in the Asanko mine plan, which AKG refuted by stating that it’s not true the mine plan final strip ratio is below that of the previous mine owner Resolute’s average. However that comes across as a Straw Man argument because that’s not what K2 claimed in its document. The K2 argument is that in the years to come (up to shell 21, to be exact) the AKG strip ratio looks very low compared to evidence and history. Not the same by any means.

• AKG claims that K2 is using the average strip ratio of previous owner Resolute as its benchmark, in fact that doesn’t take into account the real key data of marginal strip rate. Again, hints at a Straw Man.

• AKG was apparently asked by one person on the call whether its reserve estimate includes assumption that the ore zones expand beneath Resolute’s old pit. This is a key point because previous owner Resolute states ore zones were thinning at the end of its tenure and it was one of the main reasons they gave up the concession. According to the source AKG got weaselly on this point, talking about the way their data implies this and that without bringing out solid evidence. Even to the taste of an “AKG Friend”, the company avoided answering this question directly and seeded doubt in their mind.

So four matters which may look like nitpicking, but devils are in the details on these matters and as stated, you would have thought that a private, off-record CC with people sympathetic to your cause would be the place to lay out your argument in a transparent manner. My source came away from the CC that was supposed to bolster the AKG cause with more doubts, rather than less, and this effect may be behind the lack of response from the stock price after the CCs were done. This five day chart of AKG versus the XAU index shows how the stock didn’t get any of the big boost enjoyed by the sector on Thursday and especially Friday (the XAU popped 5% Friday, a big move for the index and the first time it’s been above 100 for a long, long time).

Ultimately this AKG battle will be resolved by hard numbers and the next batch, the 2q16 production results, are going to be an important set to consider. AKG is likely to guide strongly for the quarters to come but the timing of the short report attack, just before quarter’s end, means that the 2q16 numbers are going to be relatively free from bias and should provide strong clues as to who is right and who is wrong. I’m staying neutral on this story though, for one thing we’re in a bull market (Mr. Partridge) and those can cover multitudes of sins. For another, AKG has a distinct data advantage and all the numbers about all its mining all of the time, we on the outside are always reduced to best-guessery and that could mean K2 is plain wrong in its assumptions. We shall see, but the AKG 2q16 production report will be one pored over closely by the mining world, K2 has seen to that and AKG didn’t do itself any favours by leaving gaps in its responses and doubts in the minds of sympathizers during those grey-areas private ConfCalls last week.