Evolution Mining continues to spend heavily on expansion to make sure that the looming slide in output is pushed further way.
Days after confirming its $1 billion expansion in Australia and Canada, the gold miner has revealed a $400 million transaction to turn its Mungari mine near Kalgoorlie in WA into a ‘cornerstone’ asset in a deal with rival Northern Star Resources.
Last Friday Evolution announced plans to build an underground mine at its Cowal gold mine in central NSW at a cost of $280 million, expand production at its red Lake mine in Canada at a cost of $200 million and spend $120 million on the Mungari mine.
All are designed to boost output and arrest a worrying slide in production.
Evolution said full-year gold production in the year to June was 680,788 ounces which was within its original guidance of 670,000 to 730,000 ounces, but 2% under revised guidance of 695,000 to 710,000 ounces issued in April.
The outcome was sharply lower than the 746,463 ounces produced in 2019-10.
The company said June quarter production was 169,146 ounces which was sharply lower than the 218,104 ounces produced in the June quarter of 2020.
On Thursday, Evolution said the latest transaction will increase Evolution’s three-year gold production outlook to 700,000-760,000 ounces in the 2022 financial year, 815,000-875,000 ounces in the 2023 financial year, and 940,000-1.01 million ounces in the 2024 financial year.
Seeing the Red Lake project in Canada continuing into 2026, it is possible Evolution will see annual output of a million ounces or more from 2024. That would be just under half the annual output of Newcrest Mining, now.
To finance this deal Evolution is raising $400 million capital (via a placement to big shareholders and a separate retail issue) in an issue at $3.85 a share, a 5.4% discount to the $4.07 close on Wednesday.
Completion of the Kundana deal is subject to ministerial consent but it is expected to be wrapped up by late next month.
The acquisition includes Northern Star’s 100% interest in the Kundana operations, 51% of the East Kundana joint venture (JV), 100% interest in tenements comprising the Carbine project and 75% interest in the West Kundana JV.
The assets are located within eight kilometres of Evolution’s Mungari operations and will boost annual output to around a quarter of a million ounces before any extra work is done to prove up new resources.
Evolution executive chairman Jake Klein said in the statement that the acquisition will transform Mungari into a cornerstone long-life asset.
“This is a pivotal transaction that will transform Mungari to establish the operation as the fourth cornerstone asset in the Evolution portfolio,” Klein said.
“It presents a unique strategic opportunity for Evolution to consolidate the Eastern Goldfields region given our existing presence at Mungari, resulting in Evolution being one of the largest tenement holders in the Kalgoorlie region.”
The Kundana assets produced 120,943 ounces in the 2021 financial year with a combined resource estimate of 2.4 million ounces.
“The acquisition assets are located in close proximity to Mungari’s processing infrastructure, with all key mining operations and identified orebodies located within eight kilometres of the Mungari mill,” Klein said.
“The transaction improves Mungari on a production, mine life and mineral resources basis. We are also excited about the exploration potential that the consolidated land package holds, which represents further mine life extension opportunities for Mungari.”
Mungari produced 133,388 ounces of gold in the 2020 financial year.
Up until Wednesday, the Evolution share price was down 23% year to date. Shareholders will be looking at this deal to help reverse that trend (though a surge in the price of gold past $US1,900 an ounce would probably be a bigger, immediate help.
Northern Star said it will use the $400 million to expand its suite of mine and prospective projects.
Northern Star also reported on Thursday that it hit its full-year gold sales guidance on a strong fourth quarter.
Northern Star also announced on Thursday that CEO Stuart Tonkin has been appointed managing director, effective today, following the Saracen merger.
Raleigh Finlayson will move from managing director to executive director for a transitionary period of approximately two months.
Mr Finlayson will then retire from the board and re-join as a non-executive director in April next year.
North Star said it sold 1.6 million ounces of gold in 2020-21, which was within FY21 guidance 1.5-1.7 million ounces at an all-in sustaining cost (AISC) for the full year of $A1,483 an oz (within FY21 guidance of $A1,390-A$1,520/oz).
That was after they sold 444,012 ounces of gold were sold in the June quarter at an AISC of $A1,459/oz (US$1,123/oz). The quarter’s average realised price of $A2,179 an oz for sales revenue of $A914 million (217,690oz hedging delivered at $A2,017/oz).
That left cash and bullion of $A803 million at June 30, 2021 (up from $A696 million at March 31) after investing $A215 million in growth capital and exploration project. North Star said it had corporate bank debt of $A662 million, so it had net cash at balance data of around $A141 million.