Evolution Mining Limited (ASX EVN) released its preliminary June 2019 quarter and FY19 production, costs and cash flow results. It also issued its production and cost guidance for FY20. The EVN share price slipped by 2.38% to $4.315 off the back of the news.
Evolution Mining is evidently suffering from cost pressures. Its “all-in sustaining costs” (AISC) for FY19 is A$924 per ounce compared to guidance in the range of A$850 to A$900 per ounce. Similarly, for 2020, AISC is anticipated in the range of A$890 – A$940 per ounce, which is 5% higher than the previous outlook.
About Evolution Mining Limited
Evolution Mining Limited (ASX EVN) is an Australian gold miner. It operates five wholly-owned mines – Cowal in New South Wales, Cracow, Mt Carlton and Mt Rawdon in Queensland, and Mungari in Western Australia. In addition, Evolution holds an economic interest in the Ernest Henry copper-gold mine that will deliver 100% of future gold and 30% of future copper and silver produced from an agreed life of mine area. Outside of the life of mine area Evolution will have a 49% interest in future copper, gold and silver production.
Evolution Mining in FY19
According to the release, the company produced 753,001 ounces of gold during the year, well within its guidance range of 720,000 – 770,000 ounces.
It reported AISC at A$924 per ounce versus guidance of A$850 to A$900 per ounce. The primary reasons for the underperformance on costs were: At the Mungari mine, there were some delays at some of the Frog’s LegMists stopes which resulted in an overall lower than anticipated grade processed. Similarly, due to operational factors, the Mt Rawdon mine was unable to extract sufficient higher-grade ore. The impact of these and other factors that impinged on costs are shown below.
Evolution’s Executive Chairman, Jake Klein, said on costs: “We are disappointed we did not deliver to our cost guidance in FY19. We are determined to remain focused on margin and operating efficiencies which is reflected in our guidance for FY20. This will ensure we maintain our position as one of the lowest cost gold producers in the world and continue to generate superior returns for our shareholders.”
Source: Company presentation (May 2019)
Operating mine cash flow during the year was A$773.6 million and net mine cash flow was A$500 million.
Mr. Klein said on cash flow: “The outstanding cash generation of our business reflects the quality of our portfolio, moving us to a net cash position at the end of the year. This cash-generating capacity of the business is expected to continue in FY20.”
Evolution Mining in FY20
During FY20, Evolution is expecting to produce 725,000 –775,000 ounces of gold with AISC in the range of A$890 –A$940 per ounce.
On converted USD basis, this cost range is among the lowest of global gold producers. According to the company FY20, AISC will not be materially different from the FY19 performance, though it is higher by 5% on previous guidance.
Evolution Mining in FY21
The company last issued FY21 guidance in November 2018. The current outlook for production is unchanged at 710,000 – 765,000 ounces. However, AISC has been revised higher by A$20 per ounce to A$880 –$930 per ounce.
The EVN share price has been on the rise since it touched a low in November 2014. At the current price of $4.315, the stock is trading within kissing distance of its 52-week high of $4.50. This is primarily due to the recent rally in global gold prices.
Nevertheless, the EVN valuation is competitive compared to the sector as shown below:
Given the improving prospects for gold due to global macroeconomic concerns, and the low-cost structure of EVN, the outlook for the stock may be considered as positive.
Henry Fung is a Partner Managing Director and co-founder of MF & Co. Asset Management. He is a highly experienced equities, derivatives and financial markets professional with over 12 years of experience. Henry specialises in building trading algorithms & systems, quantitative & qualitative analytics across macroeconomic, fundamental and technical disciplines and currently runs the MFAM VPAC AU/US models portfolios. The management Partners and Adviser team have decades of experience between them, with experience from major Investment Banks and Brokers. Their Advisers are highly experienced, having dealt with some of the wealthiest clients in Australia.