{ "docId": "019dd923-622c-750b-8b96-91b6b54834a7", "docSlug": "9776de5e0578", "documentTitle": "Asanko Gold Inc. (AKG)", "authorId": "51_Muddy_Waters", "authorName": "Carson C. Block", "documentKindSlug": "research-note", "documentKindLabel": "Research note", "sourceTypeSlug": "short_seller", "sourceTypeLabel": "Short seller", "presentationDate": "2017-05-31 00:00:00", "orientation": "portrait", "aspectRatio": 0.77272725, "pageNumber": 5, "pageCount": 43, "prevPage": 4, "nextPage": 6, "slideType": "problem_statement", "function": "diagnose_problem", "density": "dense", "nDataPoints": 6, "notes": "The text argues that flawed geological modeling is the root cause of the company's operational and financial failures.", "elementsJson": [ "paragraph", "footnote" ], "metadataConfidence": 0.9, "imagePath": null, "slideHref": "/slides/019dd923-622c-750b-8b96-91b6b54834a7/5", "deckHref": "/decks/019dd923-622c-750b-8b96-91b6b54834a7", "deckJsonHref": "/decks/019dd923-622c-750b-8b96-91b6b54834a7.json", "deckAnchorHref": "/decks/019dd923-622c-750b-8b96-91b6b54834a7#slide-5", "components": [ { "bbox": null, "kind": "callout", "text": "We see AKG root problem as flawed geology.", "attrs": null, "subkind": null, "toolName": "Visual emphasis", "toolSlug": "visual-emphasis", "confidence": null, "componentId": "019dd953-203c-716b-be70-9ef55ef5e6e6", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.2, "w": 0.78, "x": 0.11, "y": 0.41 }, "kind": "paragraph", "text": "The satellite deposits will not save AKG in our view. Nkran’s poor performance has meant that AKG lacks the cash flow to Esaase. This has seemingly caused AKG to focus on small low grade “satellite deposits” to plug the hole. Over the last year, AKG has repeatedly shuffled its satellite mine development plans, fast-tracking mines with near surface ores apparently to generate some cash flow. Since Q2 2016 the satellite plan has changed on an almost bi-monthly basis. The demotions of once promising deposits imply expected economics that are much worse than stated in AKG’s Mineral Resource Estimates (MREs). These frequent changes also signal the company is desperate. We believe these deposits will follow Nkran in disappointing due to flawed geology.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "0b67e19e-a7e0-4580-8ea4-e41cd81aa1a4", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.25, "w": 0.78, "x": 0.11, "y": 0.15 }, "kind": "paragraph", "text": "With uncertainty hanging over the quantity and quality of ore below, the company faces a dilemma: should it risk running out of money by pushing back the walls, or admit defeat and move on from Nkran, but likely without the liquidity needed to generate meaningful cash flow from its other resources? As of the end of FY16, Nkran has significantly underperformed the original 2015 mine plan despite mining so aggressively as to have removed 19% more ore than planned. There was an -11% short fall in total gold production. Recent disclosures cause us to think the company will deem Nkran as pinched out, and it will therefore abandon the project. In that case, if the 2.7 million tons of ore and 166,000 ounces recently reported as being accessible with minimal additional cost is all the mining management intends to complete at Nkran, then Nkran’s remaining LoM could even be less than half a year (which would reduce Nkran’s LoM to one-fifth or less of its original plan).", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "63bb9cbe-e79f-4311-9f59-a7e3acf7d5e0", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.15, "w": 0.78, "x": 0.11, "y": 0.62 }, "kind": "paragraph", "text": "We see AKG root problem as flawed geology. The most recent evidence of the poor geology is the newest Nkran pit model, which significantly decreased the reserve estimates. An expert report we reviewed on the history of AKG’s MREs and other technical reports was highly critical. The experts found significant flaws and omissions in the assumptions and methodologies, including possible “smearing” of the mineral resource model. The report strongly suggests that critical flaws remain in the pit models for Nkran, Esaase, and the original satellite deposits including Dynamite Hill, which until May 23, 2017 was the satellite first in-line", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "9bbe39cf-1604-4843-ab33-cfc1ddc56b30", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.06, "w": 0.78, "x": 0.11, "y": 0.08 }, "kind": "paragraph", "text": "its pit floor is a skinny, irregular shape, only ~65 meters at its widest point and narrowing to about half that at either end. AKG might have as few as two benches of depth (at 18 meters per bench) in Nkran that it is able to mine.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "caa36d0b-7880-4721-801e-f6d254beea71", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.18, "w": 0.78, "x": 0.11, "y": 0.78 }, "kind": "source-note", "text": "5 Per the FY15 MD&A, total ore mining for 2016 was to be 3.943 million tons, from Q1 through Q4 4.676 million tons of ore were reported as mined (Q4 2016 earnings presentation, p.5, Q1 2016 MDA p 12). Total 162,838 oz in total vs. the 182,428 oz in the Mine Plan reported in the 2015 Full Year MDA, p. 11). This includes 15,337 oz of gold recovered predominantly from inferred ounces in Q1 2016 which should not be depleted from its reserves/ resources. 6 Based on recent mining rates which are predicted to remain unchanged. As reported the strip rate for these is 2:1 (Q1 2017 conference call). 7 AKG, Technical Presentation, 2017-02-24. Nkran’s reserve ounces were downgraded by 22.6%, a loss of 430,000 ounces of gold. 8 The “pit model” refers to the mineral resource block model which generates a geological 3D model based on data input from drilling of the deposit area, but as interpreted and adjusted per algorithms, design parameters, and the discretion of geologists who create it. In this report these 3D geological models may alternately referred to as a “block model”, a “pit model”, or “model.”", "attrs": null, "subkind": null, "toolName": null, "toolSlug": null, "confidence": null, "componentId": "3e26d710-0d09-4a43-8a63-bcbd73518d3a", "frameworkName": null, "frameworkSlug": null } ], "metrics": [], "tools": [ { "name": "Problem Statement Canvas", "slug": "problem-statement-canvas", "agent": "Architect", "layer": "slide", "matchId": "4f64cf1a-7965-4c74-8892-2d97edb49386", "evidence": "We see AKG root problem as flawed geology.", "confidence": 0.7 } ], "frameworks": [], "arcBeats": [ { "to": 5, "from": 5, "beatId": "b27509b8-b599-420c-9e74-a01ba6f38725", "arcName": "Overcoming the Monster", "arcSlug": "overcoming-monster", "beatName": "Problem", "beatSlug": "problem-agitate-solution-problem-identify-pain", "evidence": "The document identifies the irregular shape of the pit floor at Nkran as a significant problem.", "position": 0, "confidence": 0.8, "parentBeatName": "Complication", "parentBeatSlug": "complication" } ], "loops": [], "imagePathAlt": null, "thumbSrc": null, "thumbSrcAlt": null, "locked": true }