Evolution Mining Ltd in the Gold Mining Market | Company Overview & CEO Profile
Evolution Mining Limited (CAHPF, EVN.AX, CAHPF, WE7.MU, WE7.DU, EVN.XA, WE7.F) is an Australian company engaged in gold mining operations in Australia and Canada. The company focuses on the production and sale of gold but also produces and sells copper concentrates. Headquartered in Sydney, Evolution Mining owns five gold mines, four of which are located in Australia — the Cowal mine in New South Wales, Ernest Henry and Mt Rawdon in Queensland, and Mungari in Western Australia — and one, the Red Lake mine, is in Canada’s Ontario. Additionally, the company holds stakes in several mining projects including the Kundana mine, Crush Creek project in Queensland, and in the West Kundana Joint Venture. Evolution Mining has a strong focus on growth and is one of the leading gold miners in Australia.
In 1998, the company was incorporated under the name of Catalpa Resources Limited but was renamed Evolution Mining Limited in 2011. In 2010 Evolution Mining acquired a site in North Queensland that was then turned into a high-grade gold mine. Over the last decade, the company has acquired five mines in Australia and one project in Canada. This growth has led the company to become a mid-tier gold mining company and one of the top 100 publicly traded companies in Australia.
In 2015, Evolution Mining entered into an agreement with the gold miner La Mancha to acquire all of its operations in Australia. According to the deal, La Mancha became the largest shareholder in Evolution Mining and its long-term strategic partner. As a result of the acquisition, Evolution Mining could raise its gold output to up to 600,000 ounces per year. In Australia, La Mancha owns the high-grade Frog’s Leg underground mine, White Foil open-pit mine, and a processing facility with a capacity of 1.5 million tonnes per year. These are high-quality and low-cost assets that are situated in Australia’s strategically important region and have significant potential for exploration upside.
Last year, the company purchased all shares of Battle North Gold, a Canadian gold mine developer, for around 343 million dollars. Jake Klein, Executive Chairman of Evolution Mining, noted that the deal would allow the company to expand its footprint in the region and take advantage of additional infrastructure. The deal resulted in combining the assets of Battle North and Evolution Mining in Red Lake Gold District. “The additional processing capacity from the new Bateman mill will also accelerate our ability to achieve our objective of producing in excess of 300,000 ounces of gold per annum from Red Lake,” Jake Klein said. The acquired Bateman Gold Project includes a mine with an area of 28,000 hectares and a mill facility with a capacity of 1,800 tonnes per day.
Earlier that year, Evolution Mining completed an agreement with Northern Star Resources (NST.AX) to acquire its assets in the Eastern Goldfields region located in Western Australia. The deal worth 400 million dollars involves the acquisition of a 100% stake in the Kundana project; a 51% stake in the East Kundana Joint Venture, a 100% stake in some tenements of the Cabrine Project, and a 75% stake in the West Kunanda Joint Venture. Experts note that the transaction helped Evolution Mining to significantly increase its gold reserves and the average reserve grade. “Evolution now has 3 assets with 12+ year mine lives and an enviable compound annual production growth rate of ~6.9% to FY2024,” writes Seeking Alpha’s analyst Taylor Dart.
In January of 2022, Evolution Mining acquired the Ernest Henry copper-gold mine from the Switzerland-based mining company Glencore plc (GLNCY) for $1 billion. This world-class asset, which is situated northeast of Cloncurry in Queensland, has provided immediate benefits from higher copper production. The deal allows Evolution Mining to reduce all-in sustaining costs by approximately 12%, making the company one of the world’s lowest-cost gold producers. Analysts noted that even following the completion of the initial $800 million round of the transaction, the company’s balance sheet would remain strong.
Assets Owned by Evolution Mining
Evolution Mining operates the Cowal open pit gold mine in New South Wales, Mungari project located 20 kilometers west of Kalgoorlie in Western Australia, large-scale Ernest Henry copper-gold mine 38 kilometers north-east of Cloncurry in Queensland, the Mt Rawdon project 75 kilometers south-west of Bundaberg in Queensland, and the Red Lake mine in Canada’s Ontario. Last year, Evolution Mining released an annual mineral resources and ore reserves statement, according to which the company’s mineral resources have increased by 74% year-on-year to 26.4 million ounces of gold and 904,000 tonnes of copper. Ore reserves were up by 49% year-over-yer. The Red Lake mine has the largest mineral resources of all assets owned by Evolution Mining, estimated at 11 million ounces. While the company reported an increase in mineral resources, it saw a continued downward trend in gold production from the peak reached in 2017. As of 2021, the company produced 681,000 ounces of gold.
The Cowal Project is a world-class gold mine located on the traditional lands of aboriginal Australian people. The site has a mine life of 11 years and mineral resources of 290.2 million tonnes at 1.04g/t Au for 9.7 million ounces. The project also hosts a processing facility with a throughput of 9 million tonnes per year. The company expects continued growth from the mine’s high-grade underground orebodies. Also, it plans to increase annual production by means of the development of a new underground mine. Since the acquisition by Evolution Mining in 2015, the mine has achieved organic growth of mineral resources from 3.4 million to 9.7 million ounces and ore reserve growth from 1.6 million to 4.6 million ounces.
In July of 2021, Evolution Mining received the government’s approval for the underground development of the mine, something that will help the company to increase gold production at the site to 350,000 ounces of gold a year and extend the mine life beyond 17 years. The output increase of 60% will boost the company’s gold production to over 900,000 ounces a year. During the 2022-2023 period, the company will invest a total of $282.9 million in the project, including investments in surface infrastructure and processing facility’s modifications.
The Cowal Project is the largest gold-producing asset owned by Evolution Mining. In 2022, the mine is expected to produce between 230,000 and 250,000 ounces of gold. “Cowal is undoubtedly a world-class asset and a key asset in the Evolution portfolio,” stressed Evolution Mining Executive Chairman Jake Klein.
The Red Lake Mine is a high-grade asset located on one of the highest-grade gold camps in North America and boasts outstanding exploration potential. It is one of the world’s biggest gold mines with long-term potential to increase the current resource base. The mine is situated some 535 kilometers north-west of Thunder Bay in Ontario, the largest gold-producing province in Canada. The asset has 11.1 million ounces of mineral resources and 2.9 million ounces of ore reserves. The mine life is 13 years and, more importantly, is expected to be substantially expanded in the future. Additionally, the site hosts a mill facility with a throughput of 650,000 tonnes per year that can be expanded with minimal investments.
The Red Lake Mine is the second-largest asset of Evolution Miming in terms of gold production, with an estimated output of 155,000-165,000 ounces in 2022. Evolution Mining purchased the Red Lake mining complex from Newmont Corporation (NEM), the world’s biggest gold miner, in 2019.
The Mungari gold mine is situated 600 kilometers east of Perth and 20 kilometers west of Kalgoorlie in Western Australia. The project includes underground mining at the Frog’s Leg mine and open pit mining at the White Foil mine. The total mineral resource of the project is 51 million tonnes grading 1.47g/t gold for 2.4 million ounces. The company has improved the throughput of the processing plant by 16% compared to 2020 to reach a throughput rate of 2 million tonnes per year. In 2021, Evolution Mining installed new software at the Mungari gold complex to improve plant performance and prevent breakdowns. Also, Evolution Mining launched the development of the Cutters Ridge open-pit mine. The current mine life of the site is 10 years. In 2022, the Mungari gold mine is planned to produce 115,000-125,000 ounces of gold.
The Ernest Henry copper-gold mine is a long-life, large-scale asset located in Queensland, a state in northeastern Australia. In addition to gold, the mine produces copper and silver. It is noteworthy that the Ernest Henry mine has one of the largest copper reserves in both Australia and in the world. It has estimated reserves of 167 million tonnes of ore grading 1.1% copper and 2.67 million ounces of gold. The mine life expires in 2026 but Evolution Mining is currently carrying out a drill program that will allow the company to extend the mine life by 3 to 5 years. The company expects the Ernest Henry mine to produce 80,000-90,000 ounces of gold in 2022.
The Mt Rawdon project is a low-grade gold deposit in Australia’s Queensland acquired by Evolution Mining in 2011. The mine has a long history of reliable production with more than 1.5 million ounces of gold produced. Last year, the mine’s gold output amounted to 75,000 ounces. According to Evolution Mining’s guidance for 2022, the Mt Rawdon project will produce around 75,000-80,000 ounces of gold this year. Also, the processing mill at the site increased its throughput from 3.3 million tonnes per year in 2020 to 3.4 million tonnes per year in 2021.
Evolution Mining in the Australian Gold Mining Market
Australia is second after China in terms of gold production, third-biggest exporter of gold, and has world’s largest gold reserves. The country houses 60 operational mines including some of the world's largest ones, such as the Cadia project and Boddington project. The country allocates significant funds in exploration activities and has approximately 100 gold projects under development.
Gold is a popular investment option in Australia, with the mining sector playing a significant role in the country’s economic recovery last year. In New South Wales, rising gold prices stimulate exploration activities and the regional government has already registered a near-record number of licenses in 2021. On the other hand, established projects such as Evolution Mining’s Cowal operation, are making investments in expansion.
In Victoria, gold production hit its highest level in over 100 years, with around a 30-percent increase in spendings on gold exploration. Government programs provide considerable support to exploration activities in the region. Western Australia, which is home to the largest gold mines in the country, has seen a growing number of projects and a significant increase in exploration expenditure. In the third quarter of 2021, Western Australia’s gold mining companies spent $309 million for this purpose, which is the highest figure since records in 1988.
“It's not just mining companies that are putting their trust in gold, but also investors, as the current mining boom shows no signs of slowing down,” writes Alex Sutton from Barclay Pearce Capital. “Investment in mineral exploration remained stable across the year, with a slight uptick in the September quarter. Considered a safe haven investment, especially in uncertain times, gold receives the largest share of investor funds in Australia, although battery minerals such as copper are also seeing growing interest”.
Evolution Mining is the third-largest gold mining company in Australia in terms of both market capitalization and market share, after Newcrest Mining (NCM.AX) and Northern Star Resources (NESRF). Chalice Mining (CHN.AX) is fourth, followed by Perseus Mining (PRU.AX), De Grey Mining (DGD.F), Silver Lake Resources (SLR.AX), Regis Resources (RRL.AX), and Ramelius Resources (RMS.AX). Gold Road Resources (GOR.AX) with headquarters in West Perth is at the bottom of the list of Australia’s top 10 gold mining companies. However, many Australian gold miners saw their share prices fall, despite strong gold prices in Australia and high margins.
Evolution Mining’s Financial Performance
In 2021, the revenue of Evolution Mining was approximately 1.86 billion Australian dollars, representing a decline from the previous year. That was also reflected in a decline in gross profit for the company in the same period of time. On the other hand, net income and diluted EPS were up by 14%. The total assets of Evolution Mining increased to around 3.96 billion Australian dollars in 2021, representing a record high for the company.
The Cowal mine accounted for more than 26% of the company’s total revenue. The Ernest Henry mine comes second as it generated 23% of total revenue. The Red Lake mine accounted for nearly 16%, however, its share in total revenue increased by an impressive 280% as compared to 2020. The Mungari and Mt Rawdon mines contributed 15% and 10% to Evolution Mining’s revenues, respectively.
In the first half of 2022, Evolution Mining’s profit dropped due to a reduction in gold volumes from Red Lake and Mt Rawdon mines. Revenue fell by 9% to $898.6 million as compared to the same period of last year. EBITDA declined by 23.6% to $393.3 million, while underlying net profit after tax (NPAT) fell by more than 57% to $100.1 million. Interim dividend was down from 7 cents per share down to 3 cents per share. Another factor that negatively impacted the company’s balance sheet was the acquisition of the Kundana mine from Northern Star Resources Ltd. Total gold production was 318,766 ounces in the first six months of 2022. In its full-year guidance, Evolution Mining expects gold output to be between 670,000 and 725,000 ounces.
“The half-year to 31 December 2021 has been transformational for Evolution,” the company’s Executive Chair Jake Klein said. “The portfolio has benefitted from key acquisitions and a significant investment in growth projects at our cornerstone assets, which is supported by a high quality Mineral Resource and Ore Reserve base, and our business is well-positioned to deliver a very strong second half”.
Evolution Mining’s market capitalization, after surging by 292% in 2015, had been growing over the next five years but switched to a downward trend during the last couple of years. In particular, Evolution Mining’s market capitalization fell by around 18% in 2021 and 46% in 2022.
Analysts give a buy rating on the stock of Evolution Mining, with an average target price of 3.33 Australian dollars. This represents an upside of 31% from the current price of around 2.3 Australian dollars per share. The low target price is 2.6 Australian dollars, while the high target price is 4.75 Australian dollars. On June 29, Japanese financial company Nomura lowered a price target for Evolution Mining stock to 2.95 Australian dollars from $4 Australian dollars, maintaining a buy rating.
Evolution Mining’s Leadership & Shareholders
Investment companies Van Eck Associates Corp., AustralianSuper Pty Ltd., and The Vanguard Group, Inc. are the largest shareholders in Evolution Mining. These companies hold 10.7%, 6.7%, and 4.7% of shares, respectively. The largest individual shareholder is Jacob Klein, Executive Chairman of Evolution Mining, who owns 15.8 million or around 0.8% of shares. He is followed by the company’s Chief Financial Officer Lawrie Conway with 1.3 million shares of Evolution Mining and the Board’s Chairman James Edward Askew who owns 929,338 shares.
Jacob Klein has been Executive Chairman of Evolution Mining since 2011. At different times, he was at the helm of 5 different companies as well as being the founder of the Australian gold mining company Sino Gold Mining Ltd with operations in China. During his work with Sino Gold Mining, Klein helped the company to become the largest foreign participant in the Chinese gold industry. In addition to being Executive Chairman of Evolution Mining, Klein is also on the board of North Queensland Metals Ltd that operates copper and zinc mines. Previously, Mr. Klein served as President at the Australia China Business Council.
In his recent interview with Bloomberg in May, Mr. Klein discussed the outlook for the company and the Australian resources sector on the whole. Klein also said that he was optimistic about gold prices in the medium and long term.
“At Evolution Mining, we are very focused on margin over volume and we have reduced our cost base, our cost per ounce by 27% this last quarter,” he said. “Production was a bit low but we are expecting it to be 20% higher out this quarter. And then rumping up Canadian Red Lake mine is a real turnaround opportunity. We are very optimistic about the long-term future. It had some hiccups due to COVID-19 but we feel we are largely through it… Inflationary pressures are real. You know gold is a great inflation hedge. It [gold] has had a slight setback in the last couple of months but it is a lot higher than it was five years ago. Then you are going to see inflationary costs pressures and we definitely see that in the sector”.
Lawrie Conway was appointed Chief Financial Officer of Evolution Mining in 2014. He has 30 years of experience in the resource sector and held different commercial and operational roles at Newcrest Mining (NCM.AX), working not only in Australia but also in Papua New Guinea and Chile. Prior to joining Newcrest Mining, he worked with BHP Group (BHP.AX), a large Australian mining company. Since 2017, Mr. Lawrie has served as the Non Executive Director at Aurelia Metals (AMI.AX), an Australian mining company that develops gold, silver, and copper deposits.
