Asanko Gold Inc. Spec BUY

AKG : TSX : C$2.50
AKG : NYSE MKT
SPECULATIVE BUY 
Target: C$3.25

COMPANY DESCRIPTION:
The combination of AKG and PMI created a significant gold
development company with 2P reserves of 4.8 Moz with a
permitted, financed (US$231M in cash, Q2/14) mine plan on half
the reserve (Obotan project) with the permit in hand with a permit
pending on the other half (Esaase project). All the assets are
within the Ghana, one of the premier jurisdictions in the entire
African continent.
All amounts in C$ unless otherwise noted.

Metals and Mining — Exploration and Development
GOLD ROYALTY ON PHASE 1 REDUCED FROM 7% TO 5% NSR
Investment recommendation
The company announced an agreement to buyback a 2% NSR reducing
the overall NSR from 7% to 5% for Phase 1 (Obotan) of the Asanko Gold
Mine in Ghana, West Africa. We view the acquisition of the NSR as a
strong positive and highly accretive given that the Phase 1 project is
breaking ground and close to production (H1/16E). We raised our target
(+C$0.10) accordingly to C$3.25, a 30% premium to current price levels,
and maintained our SPECULATIVE BUY recommendation. We anticipate
more construction updates leading to a resource update for Phase 1
followed by an updated mine plan (Q4/14E

Investment highlights
 Our revised target price is based on an increase in our NPV8% (+4%
to US$733 M) of the combined Obotan (Phase 1) and Esaase (Phase
2) gold projects, now known as the Asanko Gold Mine, related to the
reduction of the NSR at Phase 1 (Obotan) from 7% to 5%. On an
NPV8% basis, we valued the 2% NSR on Phase 1 at C$25-30 M (LT
US$1422) The drop in our NSR assumption from 7% to 5% for Phase 1 is
related to the recently announced purchase of the 2% Goknet
(privately held company) NSR for 1 M shares of AKG and cash (we
estimate US$1 M as the details were not disclosed). In addition, AKG
will transfer the rights to two exploration projects, Kubi and Diaso,
which the company deems as non-material.
 In November 2012, Asante Gold Corp. (ASE : TSX-V
offered to purchase half (1%) of the 2% NSR on the Obotan project
from Goknet for C$22.5 M via shares (45 Msh, C$0.50), which
would now be worth about C$4 M (for 1% NSR). The sale was never
completed

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