Evolution Slammed 20% as Regression Sets In

Last week we saw surprisingly bad reports from gold miners Dacian, St Barbara and Ramelius Resources. Monday, the much larger gold and copper miner Evolution Mining followed with very weak update of its own at the end of the financial year.

At the same time and gold and copper major, OZ Minerals added some bad news of its own (see separate story) on Monday.

Evolution shares plunged more than 20% after it downgraded its four-year growth plan less than a year after launch.

The shares ended a rough day down nearly 22% at $2.64. That’s the lowest they have been since the end of 2017.

At the same time the problems for both miners come at a time when costs are rising because of higher energy and other problems, as well as staff shortages.

Evolution cut its gold production guidance for this year and future years, as pandemic disruptions and delays on its Red Lake gold mine in Canada has seen it haul back on its ambitious five-year growth plan.

Evolution in fact confessed that 2022-23 gold production is expected to be lower than that for 2020-21 while its ASIC (All In Sustaining Cost – the key cost measure for gold miners) is likely end up a higher – a big negative for investors.

The rise in costs has been driven by higher cost for a wide range of inputs especially energy and lower than forecast production of gold which means few ounces to spread the costs over.

Evolution expects its production will fall around 6% year-on-year in the 2021-22 year – that news helped send the shares sharply lower and keep them there all day.

Gold production in the year to June 30 (this Thursday) will be around 640,000 ounces, compared with 680,788 for 2020-21.

The company’s ASIC in 2020-21 was $1,215 an pounce, one of the lowest in the industry, but it could rise to $1,250 for the about to end financial year.

Its final AISC figure for 2021-22 is dependent on the copper price on Thursday. The current copper price (around $US8,300 a tonne on the London Metal Exchange, or around $US3.76 a pound on Comex) would result in group AISC well above the guidance range of $1,135 to $1,195 an ounce.

Because of delays and problems – especially at Red Lake in Canada and at Cowal in NSW where wet weather has been a concern, Evolution sees both its sustaining and major capital investment this financial year being at the lower end of their guidance ranges.

Evolution though reckons gold production in the current June quarter will rise 15% from the December, 2021 quarter to around 170,000 ounces.

That would be roughly the same as the 169,146 ounces produced in the June, 2021 quarter.

It also says it has plenty of liquidity on hand – around $900 million, including $540 million of cash, at the close of business on Thursday.


But what worried investors besides the higher costs was the delays to the five-year plan outlined last year.

While Evolution says it is expecting production to increase 12% to 720,000 ounces in 2022-23, there’s a possible 5% leeway on that estimate.

Production is tipped to rise another 11% to 800,000 ounces (again, with a plus or minus 5% leeway) in financial year 2024.

If that happens it will boost gold output by an impressive 25% increase in production over the coming two years.

Those figures however are lower than they previously were, mainly due to delays at the company’s Red Lake project in Canada.

Evolution’s AISC guidance for the coming two financial years is in line with financial year 2022’s – around $1,240 an ounce.

That’s also higher than previously projected.

Analysts say a slide in energy prices in the next two years could improve the AISC outlook for Evolution and the rest of the industry.

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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