RE:Hedge fund claims 90% downside potential at Asanko GoldHere's the full text. Now, how will the Company refute this story? They have to do a whole lot more than just saying it in order to defend the Company's reputation and uphold its deposit values. And if the story is really NOT true, then the Company should sue K2 to come clean with its resources and mine plan etc.....
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As now, as someone is questioning your deposit, the Company must prove and defend the merits of the deposit.
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. Gold miner Asanko Gold Inc. has come under attack from a Toronto-based hedge fund that claims its stock price could plunge 90 per cent.
The main allegation from K2 & Associates Investment Management Inc. is that Asanko’s gold resources “don’t add up” and appear to be over-inflated by a factor of two. K2 has a short position in Asanko, and in the grand tradition of short sellers, the hedge fund published its report on the company on a public website, allowing anyone to download it.
The strategy is reminiscent of previous short-seller attacks on Chinese-Canadian firms Sino-Forest Corp. and Silvercorp Metals Inc., which were highly effective in driving down the stock prices of the targets. However, this short report only had a minor impact. Asanko shares dropped five per cent on Wednesday, closing at $5.17 on the Toronto Stock Exchange.
“We thought it was important for our work and opinions to be entered into the public conversation,” K2 founder Shawn Kimel said in an emailed response to questions. He noted at least nine other groups are publishing opinions on Asanko and that it is his fund’s largest short position.
Asanko, for its part, rejected everything alleged by K2.
We completely refute the claims made in the K2 report,” spokeswoman Alex Buck said in an interview.
“We stand by our 2016 production guidance, we stand by our resource estimate… and we stand by our life of mine plan.”
Asanko has been one of the most successful Canadian gold mining stories in West Africa. The company brought its Asanko gold mine in Ghana into production this year and has a market value north of $1 billion, even after Wednesday’s drop.
But K2 isn’t buying the hype. Its primary concern is Asanko’s Nkran deposit, which the company acquired in 2014. It noted that the deposit’s previous owner, Resolute Mining Ltd., said the ore zones become “thinner and more discontinuous” deeper underground, whereas Asanko’s reserve estimate implies that they “expand dramatically.”
Kimel said the first thing K2 noticed was how the gold resource increased by a factor of more than four in only a year. The hedge fund was curious how that could happen and ultimately felt the nature of the drilling did not justify that upgrade.
“The company’s current resource estimate contains (roughly six times) more gold ounces than the previous miner’s stated resources before they forfeited the asset,” K2 said in its report, which totalled 42 pages.
The hedge fund believes Asanko will struggle to meet the production estimates in its plan, and will have to reduce its reserves. It said the Vancouver-based miner has “numerous buffers” to prop up its near-term production numbers, but they are ultimately not sustainable.
On the other hand, Buck said Asanko “comprehensively and systematically” updated the gold resources following the acquisition and there are no problems with its disclosure.
Asanko’s chairman and chief executive both worked at nickel miner LionOre Mining International Ltd., which was sold in 2007 for US$6.7 billion.
Financial Post
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