Asanko Gold Inc. (NYSEMKT:AKG)
Asanko Gold Inc. (NYSEMKT:AKG) has hit back at claims from activist short-seller Muddy Waters that it is destined to run out of cash should gold prices not rally above the $1700 an ounce level. The company’s chief executive officer, Peter Breese, maintains the report has no merit, reiterating that a June 5 feasibility study will set the record straight. However, it appears Wall Street is not buying into the company’s defense.
Asanko Stock Implosion
In the wake of Muddy Waters report, trading on Asanko Gold Inc. (NYSEMKT:AKG) shares had to be halted after they dropped by more than 10% on the Toronto Stock Exchange. The stock has now shed more than 40% in market value since the start of the year and is at risk of going under the $1/share trading level.
In a research note to investors, Muddy Waters maintains that Asanko Gold Inc. (NYSEMKT:AKG) prospects remain bleak given that investments in Ghana were based on flawed geological data. The hedge fund states it does not expect production at the Nkran mine and other deposits to meet production estimates this year.
According to the hedge fund, failure to meet production estimates would make it hard for the company to stay cash flow positive as it continues to struggle to pay its $165 million debt. The company finds itself in a tough spot given that it cannot abandon its Nkran mine as that would cost between $75 and $115 million. Shutting down the mine is not an option given that cash flow from the mine is being used to finance other projects.
“The best-case medium-term scenario seems to be an extremely dilutive equity raise, possibly approximating half of AKG’s market cap. The worst-case scenario – and not a remote one in our view – is bankruptcy. Regardless, the stock is highly likely to end up worthless,” said Muddy Waters in its Report.
Asanko Gold Inc. (NYSEMKT:AKG) has already refuted the hedge fund’s claims and reiterated that it remains on track to achieve its full-year production guidance of 230,000 to 240,000 ounce of gold this year. The Gold miner expects between $64 million and $77 million in cash, based on the production estimates and spot gold going for an average of $1200 an ounce.
Asanko Gold Inc. (NYSEMKT:AKG) sentiments on the street were dealt yet another blow by BMO Capitals Markets which affirmed Muddy Waters claims, reiterating that most of the issues raised were previously known.
Asanko Gold Inc. (NYSEMKT:AKG) dropped, again, in Wednesday trading session – shedding 31.02% in market value to end the day at $1.29 a share.
I have no positions in any of the stocks mentioned, and have no plans to initiate any positions within the next 72 hours. All information, including any data, is provided without any guarantees of accuracy.
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About the author: Monica Gray has an undergraduate degree in Accounting and an MBA – earned with Honors. She has six years of experience in the financial markets and has been a securities analyst for the past two years.