Shares of Asanko Gold Surge After Company Refutes Short-Seller Report

By Tyler Crowe Markets Fool.com

What happened

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Shares of gold miner Asanko Gold (NYSEMKT: AKG) are up 40.3% as of 10:45 a.m. EDT today. The big surge in share price comes on the heels of a management press release that refuted claims from a short-seller report.

So what

Stop me if you have heard this story before. Person or company with a vested interest in seeing a stock's price decline issues a scathing report that contains phrases like "shares are worthless" or "are going to zero." That report sends shares plummeting. Then management refutes the claims in the short-seller's report, which sends shares right back up again.

Image source: Getty Images.

This situation isn't uncommon for smaller companies with low stock prices, such as Asanko Gold. This time around, short-selling company Muddy Waters LLC issued a report Wednesday morning that forced the Toronto Stock Exchange to halt trading. The report questioned Asanko Gold's geological modelingand the size of its gold deposits, and found increased spending to cover some one-time expenses problematic.

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Management quickly addressed the issue by releasing a statement yesterday that refuted many of Muddy Waters' claims. It also reiterated its guidance for 230,000 to 240,000 ounces of gold for 2017.When trading on the stock resumed this morning, shares picked back up to levels before the short report.

Now what

Situations like these happen all the time and are typically much ado about nothing. In this case, management refuted just about every claim the short-seller report had brought forth, and the market responded accordingly.

That doesn't change the fact that Asanko Gold is a small miner with a middle-of-the-road cost base -- its all-in sustaining cost for the past four quarters is around $1,000 per ounce -- and it has never produced a positive net income result in its history. Even before this report, the investment thesis in Asanko was questionable, but the mere fact that the company's stock is caught up in one of these short-seller attacks is just another reason to avoid the stock entirely.

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Tyler Crowe has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.