Asanko Gold drops 10%, PMI soars 35% as companies merge

After a failed merger attempt earlier this year, Canada's Asanko Gold (TSE:AKG) has struck a deal to acquire PMI Gold (TSE:PMV) for C$183 million. The new company is on route to produce 400,000 ounces of gold annually by 2017.

Asanko's previous attempt at merging with PMI Gold fell through due to a lack of support – shareholders saw Asanko's Esaase project in Ghana as too risky.

Now, Asanko says it has "significantly de-risked" Esaase, resulting in the new deal announced on Tuesday.

Asanko's share price sank nearly 10% following the news on Tuesday, trading at $1.92 per share on the Toronto exchange. Meanwhile, PMI gained more than 35%, trading at $0.38 per share.

The two companies will create a mid-tier producer with two Ghanian mines, including Esaase and PMI's Obotan project. Combined, the two sites have a measured and indicated resource base of 7.5 million ounces, and 2.9 million inferred ounces. The two projects are just 15km apart.

“This transaction delivers increased certainty to the development and success of the combined Esaase and Obotan Gold Projects at a time when the standalone financing and development of either of these mines is challenging," PMI CEO Peter Bradford said in a statement.

"For Ghana, the transaction and resulting certainty of financing and development ensures continued growth of the gold sector and new jobs at a time when the rest of the gold industry in Ghana is scaling back their activities and reducing employee numbers," Bradford added.

By 2017, their annual production is expected to total about 400,000 ounces of gold, 200,000 from each site. Esaase is fully funded and expected to start construction in 2014. Obotan will be developed at the same time.

Asanko's executive team will manage the company and maintain its regulatory office in Vancouver, Canada. PMI and Asanko shareholders will hold approximately 50% each of the combined company.