Evolution growth plans accelerate as costs creep higher

Evolution Mining plans to significantly ramp up operational expansion and exploration despite reporting higher than anticipated costs for the 2019 financial year.

The company achieved all-in sustaining costs (AISC) of $915 an ounce, above its $850-$900 per ounce guidance range, which was driven by both “operational and non-operational factors.”

Evolution’s Mungari operations experienced slight delays in some of the Frog’s Leg Mists stopes, resulting in an overall lower than anticipated grade being processed.

This coincides with issues at Mt Rawdon, which experienced difficulties in extracting sufficient higher-grade ore as it transitioned back into the northern end of the pit.

Higher royalties, due to an increase in gold prices in the June quarter, alongside lower by-product credits in response to lower copper prices also impacted the company’s AISC.

Evolution reported gold production of 753,001 ounces in the 2019 financial year, which was above the midpoint of its 720,000 to 770,000 ounce guidance.

The company’s 2020 financial year guidance stands between 725,000 and 775,000 ounces gold, with costs expected to be in the range of $890-$940 per ounce.

Executive chairman Jake Klein said Evolution’s cash generating capacity was expected to continue, but he was “disappointed” the company couldn’t deliver on its cost guidance.

“We are determined to remain focused on margin and operating efficiencies which is reflected in our guidance for financial year 2020,” he said

“This will ensure we maintain our position as one of the lowest cost gold producers in the world and continue to generate superior returns for our shareholders.”

Klein highlighted Evolution’s “outstanding cash generation”, which is expected to move the company to a net cash position at the end of the year.

Cash generation during the June quarter was $109.4 million, moving Evolution to a net cash position of $35.2 million at June 30.

The company’s cash balance increased by $79.4 million to $335.2 million and bank debt was reduced by $30 million to $300 million.

Evolution’s investment in sustaining capital during this period is expected to be between $90 million and $130 million, with tailing facilities at Mungari, Mt Carlton, Mt Rawdon and Cracow being the main focus areas.

Resource definition drilling, which is included in sustaining capital, is expected to be in the $13 million to $20 million range.

Evolution expects to spend between $195 million and $235 million on major projects and exploration, with the majority of this being spent on expansion projects at Cowal.

The operation is expecting to increase production from 250,000 ounces to over 300,000 ounces per annum.

Major capital at Cowan includes the continuation of the Stage H mine development, a ramp up of the integrated waste landform and the plant expansion project.

Evolution’s capital investment at Mt Carlton relates to the development of the new underground mine, plant optimisation and Stage 4 open pit mine development.

The company is also significantly ramping up exploration investment from $50 million in the 2019 financial year to between $80 million and $105 million in the 2020 financial year.

This is largely driven by the success at Cowal as the GRE46 and Dalwhinnie underground mineralisation continues to be defined and extended.

Cowal, Mungari and greenfields exploration projects will receive the largest allocation of the company’s discovery investment in the 2020 financial year.

The forecasts were released as part of the company’s preliminary operating results for the financial year, ahead of its quarterly report to be released on July 24.

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