Evolution Mining Announces Significant Increase In Mineral Resource

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Evolution Mining Announces Significant Increase In Mineral Resource, Up 2%

  • Ernest henry copper Mineral Resource estimate up 28 percent to 1.13 million tonnes
  • Ernest Henry gold Mineral Resource estimate up 24 percent to 2.07 million ounces
  • Ernest Henry accounts for 48 percent of Evolution’s estimated FY23 annual gold production
  • Significant industry inflation and COVID related staff shortages are impacting production costs
  • FY22 cost of gold production was $95 per ounce above the midpoint of AISC guidance
  • Evidence that FY23 cost guidance can be achieved in a high inflation environment needed before sustained positive sentiment returns to Evolution.

Evolution Míning (‘Evolution’ or the ‘Çompany‘) owns and operates five wholly-owned mines in the safe jurisdictions of Canada and Australia, including the Ernest Henry mine, previously operated by Glencore. A significant by-product of the Ernest Henry mine is copper and to a lesser extent, silver. This by-product revenue assists in the reduction of all in sustaining costs of production at this mine.

Evolution seeks to own a portfolio of high-margin assets, by acting counter-cyclically to acquire assets at attractive valuations from motivated sellers. The Company’s consistent and clear strategy is to prioritise margin over ounces produced, from sites with an average mine life of at least 10 years. The production weighted average mine life across the portfolio is currently 14 years.

Increased Mineral Resource at Ernest Henry

Evolution has announced a 28 percent increase in the Mineral Resource estimate of copper to 1.13 million tonnes and a 24 percent boost of gold to 2.07 million ounces at its flagship mine, Ernest Henry. This increased Mineral Resource estimate has improved the mine life extension potential which is currently being assessed under a Mine Extension Pre-feasibility (PFS) study due for completion by December 2022. The PFS so far includes 30 kilometres of new drilling from 119 drillholes up to 31 May 2022. The mineral system remains open at depth and so there is potential for further resource additions following the completion of more drilling, which has the potential to extend the mine life beyond 2031.

About Ernest Henry

Ernest Henry is a world class asset located 38 kilometres north-east of Cloncurry, Queensland. Evolution acquired an economic interest in Ernest Henry in November 2016 from Glencore under a joint venture agreement that delivered 100 percent of future gold and 30 percent of future copper produced. Evolution transitioned to 100 percent ownership of Ernest Henry in January 2022.

The drilling success and potential mine life extension builds on an already impressive mine site that cost $1.9 billion to acquire and has returned over $1.5 billion of net mine cash flow. Ernest Henry annual gold equivalent production is about 350,000 ounces, representing 48 percent of Evolution’s 720,000 ounces of production guidance for FY23. The mine site generated $435 million of net mine cash flow in FY22, also being 48 percent of Evolution’s total FY22 operating mine cash flow of $893 million.

Looking Ahead

The updated Mineral Resource and Ore Reserve Statement has revealed a broader mineralised zone than currently modelled at Ernest Henry. Evolution maintains a strong balance sheet that includes around $900 million of liquidity with cash of $572 million. This has enabled the Company

to pay $1 billion in 18 consecutive dividends to June 2022.

Although Evolution is one of the lowest cost global gold producers, like many miners, it is facing significant industry inflation costs and COVID related staff absenteeism. Cost of production, as measured under the All-in Sustaining Cost (AISC) convention, came in at $1259 per ounce for FY22. This compares to the original guidance range of $1,135 - $1,195 per ounce, a difference of $95 per ounce.

Evolution has guided the market to FY23 AISC of $1,240 per ounce. The market will be looking for evidence that this cost guidance can be achieved in a high inflation environment for sustained positive sentiment to return in the months ahead.

Louis Mosmann

Louis Mosmann is a Private Wealth Client and Research Assistant at KOSEC- Kodari Securities. Louis covers macroeconomic events, global markets and ASX300 company announcements, allowing clients to make more informed investment decisions. Email Louis at l.mosmann@kosec.com.au.

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