Evolution Mining shares outperformed in yesterday’s miserable market

Evolution Mining shares outperformed in yesterday’s miserable market, thanks to a trading update which revealed a doubling of its dividend rate after a strong performance on production and costs in the 2015-16 financial year.

Evolution provided preliminary guidance for the June quarter and the full 2015-16 financial year, ahead of an investor day in Sydney at which chairman Jake Klein said the miner had “achieved record results on every measure” during the period after integrating the two projects it acquired in 2015 – Mungari and Cowal.

Evolution said the full year result is expected to deliver record production, costs and net mine cash flow, all in line with previous guidance. That includes production of 800,000 ounces of gold, up from 438,000 ounces in the previous period, at an all-in sustaining cost of $A1000 an ounce.

The company said it generated an estimated 2015-16 net mine cash flow of $405 million.

And, revealing a three year production and cost outlook for the first time, Evolution said it expected to produce at least 800,000 ounces of gold each year for the next three years and gradually reduce its all-in sustaining costs over the period to as low as $A910 an ounce.

Mr Klein said in the update the company’s improved long-term outlook had enabled Evolution to double the dividend rate it expected to return to shareholders to 4% of revenue, effective immediately.

In the 2015 financial year, Evolution paid a total dividend of 2 cents a share unfranked, but the company said yesterday that it expected to move to franked dividends from the end of the 2017 financial year.

Evolution shares jumped 5% to $2.71 in the wake of the update yesterday, and then turned tail and fell to close down nearly 4% at $2.44..

The strong cash generation also allowed the company to slash debt by $322 million since September, with gearing reduced from a peak of 32% to about 15% over this period.

"Group debt has been reduced to A$285 million consisting of A$95 million in the Senior Secured Syndicated Revolver Facility and A$190 million in the Senior Secured Syndicated Term Facility. In addition to the debt repayments, in FY16 Evolution paid in excess of A$100 million in one-off acquisition and integration related costs and stamp duties,” the company said yesterday.

"Evolution is now firmly in the lowest cost quartile of global gold producers," Mr Klein said in the statement.

"With production expected to increase in FY17, we are looking forward to an even better year ahead."

Evolution guided production of 800,000 to 860,000 ounces of gold for the 2016-17 financial year at an all-in sustaining cost of $A985 to $A1045 an ounce. The assumed exchange rate is 0.75 US cents.

“Expenditure on sustaining capital in FY17 is forecast to be in the range of A$90 – A$120 million,” the company said yesterday. "The majority of this expenditure is related to resource definition drilling and tailings facilities. Cowal will receive the largest proportion of the sustaining capital investment in FY17.”

The company said that investment in growth (major project) capital and exploration is additional to the costs mentioned above.

"Investment in major capital in FY17 is forecast to be in the range of A$110 – A$140 million and exploration expenditure is expected to total approximately A$25 – A$30 million. These costs, which are associated with growth and future production, will add between A$160 – A$200/oz to AISC.

"The bulk of the major capital expenditure is associated with open pit stripping at White Foil, Mt Rawdon and Edna May. Both Mt Rawdon and Edna May will complete their accelerated stripping programs in FY17,” evolution told the ASX.

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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