The Glittering News from Ghana

06/18/2013 7:00 am EST

Focus: GLOBAL

Lawrence Roulston

Editor and Publisher, Resource Opportunities

A gold project in a politically friendly African country is picking up speed, yet the miner remains an excellent value, says Larry Roulston of Resource Opportunities.

A pre-feasibility study recently completed for Asanko Gold's (Toronto: AKG) Esaase gold project in Ghana shows robust economics, with a 23% rate of return and a $354 million net present value (at 5% discount rate). The study was based on a long-term gold price of $1,400 an ounce.

Results of that study led management to immediately initiate a definitive feasibility study (DFS), which is now targeted for the fourth quarter. If the feasibility study supports the PFS results, production could begin as early as 2015, following an 18-month development schedule.

The PFS is based on an open-pit mining operation with a conventional processing facility. The capital expenditure is estimated at $286 million for an operation that would produce an annual average of 200,000 ounces of gold for a ten-year mine life. Free cash flow (after taxes, royalties, and sustaining capital) is projected to average $87 million a year.

There is considerable upside beyond the PFS. For example, only half of the 4.1 million ounces of measured and indicated resources (95 million tons at 1.45 g/t) is included in the mine plan. There is a further 1.5 million ounces of inferred resources at a similar grade.

Refinements of the mine plan since the PFS suggest good potential to extend the mine life. That will be further investigated in the feasibility study. Extending the mine life would add substantial value to the project. Further metallurgical testing is also underway, with good potential to add value.

The Esaase permitting process is advanced, and is anticipated to be completed before the end of this year. The company now has an experienced mine-building team in place.

With $195 million of cash on hand, they are in an excellent position to move the project ahead quickly. The cash on hand represents 93% of the current market value of the company, implying an exceptionally low value for a high-quality, advanced-stage gold project in a favorable jurisdiction. The valuation will undoubtedly increase as the project moves toward a feasibility study.

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