Evolution Mining chairman Jake Klein has switched focus to turning around the performance of the company’s latest acquisition, the Red Lake gold complex in Canada.
Like several Australian gold producers, Evolution has turned its attention to North America where asset valuations are comparatively low compared with those on Aussie soil.
The company announced this week that it had agreed to pay Newmont Goldcorp US$375 million ($553 million) in cash for Red Lake, with an additional US$100 million also payable upon discovery of new resources.
Evolution identified Red Lake as an opportunity for operational improvement and an accretive addition for its shareholders after three years of assessment.
Within a week of the acquisition, Klein shared his thoughts on why Red Lake had become a high cost mine under former owner Newmont Goldcorp and how Evolution planned to change this.
“In 2016, Goldcorp announced a strategy which aimed to increase production by 20 per cent, reduce costs by 20 per cent and increase reserves by 20 per cent,” Klein, speaking at the Evolution’s annual general meeting, said.
“Whilst this strategy may have had merit at other Goldcorp operations, it was not suited to Red Lake.”
Under a strategy prioritising volume over value, and receiving less attention than other assets, Red Lake began to suffer from chasing higher tonnage without equal exploration investment.
“We believe that through a well-directed investment of $US100 million ($147.6 million) in capital and $US50 million in exploration over the next three years, we can restore Red Lake’s position as a low-cost gold producer,” Klein said.
“We recognise it’s going to take time, however for less than 10 per cent of our market capitalisation, we are confident (it) will be able to produce in excess of 200,000 ounces at less than $US1000 an ounce.”
As well as the commitment to exploration, Evolution noted Red Lake’s sound reserve of 2.1 million ounces and recognised that the business, including workers, would require changes to cut costs.
“Newmont Goldcorp understand and agree with the turnaround potential of Red Lake, recognising in their portfolio, it would not have the priority require to achieve this,” Klein said.
“I am optimistic this will lead to other opportunities for Newmont Goldcorp and Evolution to work together, the next exciting chapter in Evolution’s history has begun.”