Building a mid-tier gold producer

Response to K2 - July 2016

Asanko’s Rebuttal of K2 Report

Asanko Gold Inc. (“Asanko” or the “Company”) offers this commentary in response to a seriously misleading criticism of its October 2014 Mineral Resource Estimate (“MRE”) and the Phase 1 Definitive Project Plan (the “Plan”) for the Asanko Gold Mine in Ghana. The criticism was published by the Toronto based shortseller K2 & Associates Investment Management Inc. (“K2”) on June 28, 2016.

Asanko fully stands by its October 2014 MRE and the Plan’s production guidance for the Life of Mine,

published in accordance with international guidelines and industry best practice. In February 2014, Asanko acquired PMI Gold Inc (“PMI”) and merged its Obotan project with the Esaase project to form what is now the Asanko Gold Mine. Following the acquisition, Asanko undertook a complete re-assessment of the MRE for the Obotan project, namely the Nkran, Adubiaso, Abore, Dynamite Hill and Asuadai deposits.

Asanko’s 2014 MRE re-assessment went back to first principles and included:
  • The consolidation of all exploration and evaluation drilling data from prior operator Resolute Ltd (“Resolute”) and PMI into one cohesive validated database.
  • The use of independent geological experts to re-log diamond drill holes beneath the base of the old Resolute pit to understand structural controls to mineralization and mineral domains. This work produced a new geological model and provided a detailed framework to produce a detailed model for the deposits.
  • The integration of the geological model into the estimate of classified mineral resources using industry’s best practice techniques and undertaken by an independent qualified person.
Asanko advises investors to be wary of K2’s admitted motive, which is to profit from short-selling (1), in which K2 benefits from a decline in the value of Asanko shares.
Investors who read K2’s “short report” style criticism should consider the following facts:
  • K2 is not a mining company and does not disclose a record of success in issuing mining reports. In contrast, Asanko’s executive team has significant experience in mining and a formidable track record of success in developing and operating mines all over the world over a number of years. Asanko’s President and Chief Executive Officer Peter Breese, for example, has over 25 years of operational experience in the global mining industry. Prior to joining Asanko in 2012, he was CEO of Mantra Resources Ltd. before its US$1 billion acquisition by ARMZ Uranium Holding Co in 2011. Before that he was Chief Executive of Norilsk International, following its US$6 billion acquisition of LionOre Mining Ltd in 2007, where he was COO.
  • K2 relies on anonymous authors whose mining credentials, if any, K2 has not disclosed. Specifically, K2 has not disclosed if these anonymous authors have the requisite technical qualifications and practical mining experience to substantiate the conclusions of the short report. In contrast, Asanko’s technical reports have been certified, as required under Canadian securities law, by named, independent, experienced and reputable Qualified Persons who vouch for the accuracy and completeness of these reports and the manner in which they are presented. Asanko relies on two Qualified Persons, who are independent of Asanko, for its October 2014 MRE and the Plan. Their names and credentials are provided below. The two Qualified Persons have reviewed this commentary and confirmed that to the extent information is drawn from the 2014 MRE, it is supported by the MRE.
  • An international engineering firm conducted an extensive independent review of both the MRE and the Plan on behalf of Asanko’s debt provider, Red Kite Mine Finance, prior to the finalization of a US$150 million loan package in 2014.
  • K2 omits to mention that in comparing Asanko’s 2014 MRE with an estimate developed 17 years ago by a former owner, Resolute, there has been a substantial increase in information gathered from subsequent drilling at depth. This information, which wasn’t available to Resolute, clearly contradicts prior assumptions that the Nkran deposit was becoming thinner and more discontinuous at depth.
    • In fact, Asanko’s 2014 MRE has the benefit of an additional 37,452 metres of drilling, which K2 has ignored, and which informed the MRE and Plan. The additional drilling, conducted between 2007 and 2012 by PMI(2), represents an approximate 50% increase in total drilling and a 97% increase in the diamond drilling within the Nkran deposit over that which Resolute had available.
    • Of the additional drilling, 34,059 metres (91%) was drilled below Resolute’s old floor for the Nkran open pit to verify the grades and continuity of mineralization at depth. In contrast, of Resolute’s total drilling, only 16,235 metres (22%) was completed below the old pit floor.
    • Moreover, PMI’s data is superior to Resolute’s because PMI has relied exclusively on diamond drilling, whereas only 52% of Resolute’s data was from diamond drilling. The balance of Resolute’s data was from reverse circulation drilling, which provides less useful results.
  • Asanko provides the table below to help investors assess the impact of the additional drilling:
Table 1: Comparison of Mineral Resource Estimates (Measured and Indicated)

MRE Estimate

Drilling History

Metres Drilled

% of Drill Data

Avg. Hole Depth

Tonnes (Millions)



Gold ounces (millions)

2014 Asanko1


Resolute RC2

Resolute DD
















1999 Resolute

Resolute RC & DD combined







Physical Inventory Change




Change %







  1. Asanko Mineral Resource Estimate technical report filed on SEDAR October 24, 2014 -
  2. DD refers to Diamond Drilling & RC refers to Reverse Circulation Drilling
  3. Includes 2 new deposits, Dynamite Hill and Asuadai, adding an additional 3.48Mt and 180,000oz (detailed information in the Mineral Resource Estimate technical report)
  4. Compares 74,167m with 111,620m
  5. Compares 94m with 430m
  • K2 also omits proper context in describing Resolute’s decision in 2000 to reduce its global mineral inventory for the mine to 749,000oz of gold. K2 incorrectly implies that the gold was removed from the resource because it was not actually present. In fact, the gold was present, but it was made temporarily uneconomic by factors that are no longer relevant, such as increasing ore hardness (which vastly reduced the throughput of Resolute’s mill) and the then prevailing weak gold prices. Asanko’s newly constructed process plant has been designed for the hardness of the ore that Resolute encountered towards the end of its operations. Moreover, the gold price assumed for Asanko’s 2014 MRE was US$1,300/oz, up 400% from US$260/oz around the time of Resolute’s mineral inventory reduction. (3)
  • K2’s short report is seriously flawed because its anonymous authors have purported to develop an alternative resource estimate without having access to the necessary and extensive analytical, geological and structural databases that Asanko’s Qualified Persons used. No K2 personnel have visited the Asanko Gold Mine or had discussions with the Asanko technical team.
  • K2 criticizes Asanko on the grounds that its estimated Nkran pit strip ratio is too low but K2 has misstated that ratio as being 3.88:1 when in fact, Asanko’s life of mine strip ratio for the Nkran pit is a much more conservative 5.24:1, as disclosed in the Plan.
  • Investors should ignore K2’s reconciliation attempts of actual mining results compared to estimated Mineral Reserves because K2 uses limited pre-production data. The purported reconciliation is premature and not technically feasible since K2 has no knowledge of where Asanko actually mined ore within the pit or what the corresponding Mineral Reserves data for that mined area was projected to be. Investors should also ignore K2’s prediction of production shortfalls, which is based on the same badly flawed reconciliation analysis.
    • Asanko has provided a preliminary mineral resource reconciliation in its Q2 2016 Production Results which shows the mine is on course. Asanko expects to provide actual mining results and estimated Mineral Reserves in Q1 2017 after an appropriate period of normalized mining of the main ore zones under the historic Nkran pit.
    • While K2 briefly discussed its purported reconciliation with Asanko’s CFO before publishing its short report, K2 did not correct its purported reconciliation even though Asanko advised K2 of the analytical flaws. For this and other reasons, Asanko is firmly of the view that K2 is acting recklessly in pursuit of its short-selling objective.
This commentary has been approved by Colin Steyn, Chairman and Peter Breese, President and CEO of Asanko. Qualified Persons Charles Muller and Thomas Obiri-Yeboah have reviewed this response and confirmed that it is supported by Asanko’s October 2014 NI 43-101 Mineral Resource Estimate and the Phase 1 Definitive Project Plan as regards information derived from those reports.
  1. Short selling is the practice of selling borrowed shares and subsequently repurchasing them. In the event of an interim price decline, the short seller will profit, since the cost of repurchase will be less than the proceeds which were received upon the initial short sale.
  2. PMI acquired Nkran in 2006 and was acquired by Asanko in 2014.
  3. The gold price assumption used for Asanko’s 2014 MRE remains reasonable based on current market trends. On June 28, 2016, the date of K2’s short report, the price of gold closed at US$1,317.40/oz.
Qualified Persons Responsible for Asanko’s Mineral Resource Estimate

Charles Muller is a Qualified Person (“QP”) under Canadian National Instrument 43-101 ( Disclosure Standards for Mineral Projects) and is independent of Asanko. He conducted an extensive review of all of the available technical data, databases, systems and geological models. In addition, he has visited the Nkran deposit on multiple occasions.

Mr. Muller has over 25 years of experience in resource modeling including specific, relevant experience acting as Independent QP since 1994 for Goldfields in Ghana. For the past 12 years he has been the QP for the Goldfields Damang Mine, also located in Ghana. Damang bears hydrothermal vein hosted mineralization similar to the Nkran deposit. Mr. Muller is a member of both the Geostatistical Association of Southern Africa and the South African Council for Natural Scientific Professions (Pr. Sci. Nat. Reg. No. 400201/04).

Thomas Obiri-Yeboah, Pr. Eng., Senior Mining Engineer, is a QP under NI 43-101 and is independent of Asanko. The Mineral Reserve Estimate was prepared under his supervision. He is a member of the Engineering Council of South African (ECSA), Registration #20100340. His technical expertise includes over 20 years in the mining sector covering production, planning and project work and he has been involved in numerous projects around the world with both base and precious metals. He spent 12 years modeling gold deposits for AngloGold Ashanti in West Africa.

Notes on Mineral Terminology

Mineral Resources and Reserves are defined terms derived from Canadian Institute of Mining definitions. Similar terminologies are in use in Australia (JORC) and South Africa (SAMRAC) and are being considered for adoption in the United States.

Mineral resources do not have demonstrated economic viability, but have reasonable prospects for eventual economic extraction. They fall into three categories: measured, indicated and inferred. Measured and indicated mineral resources can be estimated with sufficient confidence to allow the appropriate application of technical, economic, marketing, legal, environmental, social and governmental factors to support evaluation of the economic viability of the deposit. For measured resources: we can confirm both geological and grade continuity to support detailed mine planning. For indicated resources: we can reasonably assume geological and grade continuity to support mine planning.

Mineral reserves are the economically mineable part of measured and/or indicated mineral resources demonstrated by at least a preliminary feasibility study. The reference point at which mineral reserves are defined is the point where the ore is delivered to the processing plant. Mineral reserves fall into two categories: a) proven reserves: the economically mineable part of a measured resource for which at least a preliminary feasibility study demonstrates that economic extraction is justified; and b) probable reserves: the economically mineable part of a measured and/or indicated resource for which at least a preliminary feasibility study demonstrates that economic extraction is justified.

United States investors are advised that while “Measured” and “Indicated” resources are recognized and required by Canada and other countries, the United States Securities and Exchange Commission does not recognize them. United States investors are cautioned not to assume that all or any part of Measured or Indicated Mineral Resources will ever be converted into Mineral Reserves.