IKN

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.