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Evolution Mining plunges over 20%

Shares in Evolution Mining (ASX:EVN), a gold and copper miner, tumbled more than 20% yesterday as it released a concerning production report for the December quarter and half-year. Weak production and higher costs were made even more disappointing by falling short of 2022’s figures, despite the acquisition of the Northparkes mine for over $700 million in late 2023.

However, Evolution Mining explained that factors such as production losses in Red Lake, Canada, and adverse weather conditions in Cowal and Mount Rawdon, Australia, contributed to the decline. Investors also missed out on the boost from the higher Australian gold price in the December quarter and half.

Gold production for the December half dropped by nearly 3%, totaling 318,377 ounces compared to 327,502 ounces in the December 2022 half-year. Copper production also suffered, falling nearly 8% to 27,635 tonnes from the December 2022 figure of 29,951 tonnes.

In the December quarter, the miner reported gold production of 161,073 ounces, a 2% increase from the September quarter but almost 3% lower than the same quarter in 2022, falling short of market consensus estimates.

The shortfall in the December quarter was primarily due to weaker production from Red Lake, Mungari, and Mt. Rawdon, triggering the sell-off. Although Evolution’s costs remained largely flat at $A1,618 an ounce compared to the previous quarter’s ASIC of A$1,612 per ounce, it was notably higher than its full-year target of $A1,340 an ounce and the $A1,099 an ounce in the December 2022 quarter.

Analysts expressed disappointment in weak cost control and poor production outcomes, especially given the strength of the gold price at the end of the half. Evolution attributed some of the issues to production constraints at the Red Lake mine in Canada and excessive rainfall in December affecting open pit access at Cowal and Mt. Rawdon.

Despite challenges, the company achieved group sales of 169,507 ounces during the quarter at an average gold price of $A3,089 per ounce, up from 161,804 ounces in the December 2022 quarter at an average price of $A2,551 an ounce. For the December 2023 half, Evolution sold 333,375 ounces of gold at an average price of $A3,000 an ounce, marking a significant increase compared to the previous year.

Total revenue from gold sales for the first half of 2023-24 exceeded $A1 billion, thanks to the record gold price, which was $A194 million more than the December 2022 half-year. Copper revenue, however, may face challenges due to a weaker copper price and declining production in the latest half.

The additional gold revenue is expected to offset the increase in costs. Evolution Mining remains focused on resolving issues at Red Lake, integrating Northparkes, and increasing output from Cowal and Ernest Henry in North Queensland. The company also anticipates positive exploration results at Cowal and Ernest Henry, which will be reflected in the annual reserves estimates to be issued in February.

As of December 2023, Evolution Mining had $191 million in cash and $716 million in liquidity. Notably, its revolving credit facility has been fully repaid and is now undrawn.