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Evolution Mining well-placed to continue golden growth story

At December 31, 2019, the gold producer was debt-free and had cash at bank of $170.3 million.

Evolution Mining Ltd - Evolution Mining well-placed to continue golden growth story
The company operates five Australian mines and is purchasing a Canadian complex

Evolution Mining Ltd (ASX:EVN) is well-placed to continue growing its gold story in 2020 after finishing 2019 debt-free and with cash at bank of $170.3 million after repaying outstanding bank debt of $275 million.

This is an increase of $78.6 million from the net cash position at the end of the September quarter of 2019.

The commitment of bank debt facilities for completion of the Red Lake Gold Complex acquisition from Newmont Goldcorp Corp (NYSE:NEM) remains in place.

170,890 ounces produced

During the December quarter, Evolution produced 170,890 ounces from its operations at an All-in Sustaining Cost (AISC) of A$1,069 per ounce.

Group mine operating cash flow during the quarter was $233.1 million and net mine cash flow was $144 million.

Evolution operates five wholly-owned mines – Cowal in NSW, Cracow, Mt Carlton and Mt Rawdon in Queensland, and Mungari in Western Australia.

It also holds an economic interest in the Ernest Henry copper-gold mine that will deliver 100% of future gold and 30% of future copper and silver produced from an agreed life of mine area.

Red Lake acquisition

In November 2019, Evolution announced the acquisition of the Red Lake Gold Complex in Ontario, Canada, from Newmont Goldcorp, which is expected to complete around the end of March 2020.

Red Lake is an underground gold mining complex in western Ontario that comprises the Red Lake and Campbell complexes, each consisting of an underground mine and associated processing facility, and the Cochenour mine.

In 2018 the mine produced 276,000 ounces of gold at an All-in Sustaining Cost of US$988 per ounce.

In 2019, Red Lake was forecast to produce 150,000–160,000 ounces of gold at an AISC of approximately US$1,600/ounce.

Since production commenced in 1949, Red Lake has produced more than 25 million ounces of gold at an average grade in excess of 20 g/t.

Evolution has agreed to pay Newmont Goldcorp US$375 million in cash upon closing the transaction and up to an additional US$100 million payable upon new resource discovery.

The company has committed to invest US$100 million on existing operations and an additional US$50 million in exploration over the first three-year period.

Mt Carlton update

At Mt Carlton, recent grade control and resource definition drilling in V2 open pit has returned results that have identified the West and East Lode ore bodies are narrowing at shallower levels than previously modelled.

A geological review has concluded that the main hydrothermal breccia zone, which constitutes the bulk of the widely developed mineralisation in the V2 pit, is tapering to a series of narrower, high-grade feeder structures at shallower depths.

A review of the underground resource model, brought about by the revised interpretation of geology in the pit, has resulted in a similar geological interpretation.

Mt Carlton was scheduled to produce significantly higher ounces in the June 2020 quarter from the mining of thick, high-grade areas in the pit and underground.

Underground development broke through to the East Lode in early January 2020 and encountered the ore body where expected.

Ore development will continue through the March quarter and stoping is expected to begin in the June quarter.

Drilling is expected to begin at Crush Creek, 30 kilometres south of Mt Carlton, in the June quarter with the aim of confirming and extending high-grade vein style mineralisation intersected in historic drilling.

However, the unanticipated loss of ore tonnes in areas that were planned to be mined over the remainder of FY20 is expected to result in an estimated production range of 70,000-75,000 ounces for Mt Carlton compared to the original FY20 guidance of 95,000–105,000.

This will have a negative impact on the Mt Carlton FY20 AISC which is now expected to be between A$1,150-A$1,225 per ounce compared to original guidance of A$800–A$850.

The impact on group FY20 production is that production will be at the bottom end of guidance of around 725,000 ounces while AISC guidance of A$940-A$990 per ounce remains unchanged.

Cowal water security

Evolution is seeking to provide increased water security at the Cowal operations in NSW.

The state is operating Stage 3 water restrictions that enable sufficient water to be supplied for ongoing operations but due to the ongoing severe drought and resulting water crisis, there is potential for these restrictions to increase.

Cowal has proactively made progress in reducing the operation’s reliance on surface fresh water through the use of sub-surface water, which is not expected to be subject to government restrictions.

In collaboration with local stakeholders through infrastructure and resource sharing, progress has been made with the following strategies:

  • Installation of a second pipeline across Lake Cowal has started and will increase pumping capacity by around 30%. The pipeline secures the ability to pump water from current and future saline bore fields, Bland Creek paleochannel as well as Jemalong Weir. The project is due to be completed in the March 2020 quarter.
  • Increased extraction of saline water through an additional two bores in the Eastern Saline Bore Field. The two additional saline bores are in preparation to be commissioned in the June 2020 quarter.
  • An additional saline bore field has been identified to the south of the Eastern Saline Bore Field. Testing is starting in the March 2020 quarter with the new bores expected to be commissioned in the September 2020 quarter. A third saline bore field has also been identified for assessment to further de-risk water supply.
  • Increased reliance on reuse and recycled water.

Quick facts: Evolution Mining Ltd

Price: 4.22 AUD

ASX:EVN
Market: ASX
Market Cap: $7.19 billion
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