Evolution Mining trimmed its 2017-18 gold production guidance and cut its costs estimate after selling the high cost Edna May mine to Ramelius Resources for up to $90 million.
Evolution said it has dropped its output estimate slightly to a range of 750,000 – 805,000 ounces (from 820,000 – 880,000 ounces) while its all in cost has been dropped to $A820 – $A870 an ounce (from $US850 – $A900 per ounce).
The total consideration consists of a $A40 million cash payment payable upon completion and up to $A50 million of contingent consideration comprising a royalty and cash and/or Ramelius shares based on performance.
Evolution said the sale was aimed at improving the quality of its asset portfolio over time.
"The sale of the Edna May gold mine is in line with this strategy. The Edna May gold mine achieved an profit (on an earnings before interest, tax, depreciation and amortisation) margin of 18% in FY17 compared to the average of 49% achieved across Evolution’s portfolio of assets.”
Chairman Jake Klein said in yesterday’s statement:
“Edna May was a founding asset of Evolution and its predecessor company Catalpa Resources. It formed an important part of the development of both companies. We thank everyone at Edna May for their important contribution to Evolution.”
“Evolution has grown significantly in recent years and Edna May is no longer a core asset of the Company. In line with improving the quality of the portfolio the decision to sell Edna May will lower our All in Sustaining Cost by approximately A$30 per ounce in FY18 and A$40 – A$50 per ounce on an annual basis. Our average mine life based on reserves will increase from 8.3 years to 8.7 years.”
Evolution shares eased 0.4% at $2.40. Ramelius shares fell 3.4% to 38.5 cents.
As a result of the deal Ramelius Resources will become a 200,000oz/year gold producer.
Ramelius managing director Mark Zeptner said the deal represented the next step in the company’s stated ambition to build on the strength of its existing operations at Mt Magnet and Vivien.
“Not only does this acquisition drive a significant increase in group mineral resources and ore reserves, as a going concern it also delivers excellent returns on our initial $40 million investment with minimal capex imposts,” he said.
“Our management team has the skills and experience to collaborate with the existing Edna May workforce to deliver on the turnaround started by Evolution and in extending the future potential of the mine.”