AHEAD OF THE CURVE

The Australian Mining Review - - EVOLUTION MINING - EL­IZ­A­BETH FABRI

Evo­lu­tion Min­ing ex­ec­u­tive chair­man Jake Klein had a clear mes­sage for del­e­gates at the re­cent In­ter­na­tional Min­ing

and Re­sources Con­fer­ence (IMARC) in Mel­bourne: the in­dus­try was ex­pe­ri­enc­ing a “cog­ni­tive bias” to­wards gold prices, with lack of suf­fi­cient re­turns rolling in for gold in­vestors.

EVO­LU­TION’S Mr Klein – who has steered the mid-tier miner’s growth since its in­cep­tion seven years ago – ques­tioned how many gold projects across the coun­try de­liv­ered on what was promised in fea­si­bil­ity stud­ies, shed­ding light on the in­dus­try is­sue of whether there is suf­fi­cient re­turns for in­vestors.

“I started in the gold in­dus­try 25 years ago and gold prices were around $US250 an ounce and gold com­pa­nies were able to make money. So, what has hap­pened?” Mr Klein told del­e­gates at IMARC.

“While we op­er­ate in a cycli­cal sec­tor, I think we suf­fer from a cog­ni­tive bias in that we think the gold price is go­ing to go up.

“In re­al­ity that is not a very good strat­egy, be­cause the only thing we re­ally know about the gold price in 12 months’ time is that it is go­ing to be dif­fer­ent.

“We hope it will go up but of­ten it is lower.” In early Novem­ber the gold price was hov­er­ing around the $US1226 per ounce mark com­pared to $US1355/oz back in Jan­uary.

Mr Klein said in light of the com­mod­ity’s un­cer­tain tra­jec­tory, a good strat­egy for min­ers was to con­sider the chal­lenges fac­ing the in­dus­try, ac­knowl­edg­ing that his com­pany’s path to suc­cess hadn’t al­ways been con­ven­tional.

Mr Klein said main­tain­ing a mid-tier po­si­tion was a de­lib­er­ate strat­egy and its board looked at port­fo­lio op­por­tu­ni­ties through two lenses: will it im­prove the qual­ity of its port­fo­lio, and se­cond will it be ac­cre­tive to its share­hold­ers.

“In the space of a mid-tier you re­ally are able to gen­er­ate enough money to fund your­self so you aren’t de­pen­dent on cap­i­tal mar­kets and you are able to gen­er­ate growth, and that com­bi­na­tion has de­liv­ered through­out the sec­tor bet­ter than any other space,” he said.

“Fun­da­men­tally as a gold pro­ducer look­ing at cre­at­ing a sus­tain­able busi­ness, the only thing we can do is to pro­duce gold at a low cost.”

And that Evo­lu­tion had achieved; in the Septem­ber quar­ter the miner pro­duced 200,218 ounces of gold at an All-In Sus­tain­ing Cost (AISC) of $885 per ounce – mak­ing it one of the low­est cost pro­duc­ers glob­ally.

Mr Klein said the next phase of its ap­proach was un­der­stand­ing what to do with the dol­lars earnt.

“You can in­vest in an ex­plo­ration find if there are more ounces. If there are not more ounces you can spend as much money as you like, you are not go­ing to find them,” he said.

“We need to get more com­fort­able telling in­vestors it is bet­ter not to spend money if that as­set is go­ing to run out [of ounces].”

Ex­pan­sions

In Evo­lu­tion’s case, the miner had a strong as­set base with plenty of op­por­tu­ni­ties to ex­pand within.

The com­pany cur­rently owned and op­er­ated five mines — Cowal in NSW; Mt Carl­ton, Mt Raw­don, and Cra­cow, in QLD; and Mun­gari in WA; as well as an eco­nomic in­ter­est in Glen­core’s Ernest Henry mine in QLD.

After a solid start to the FY19 year, Evo­lu­tion had its sights set on fur­ther growth, and was eye­ing ex­pan­sions at its Mt Carl­ton and Cowal mines on the east coast.

In early Oc­to­ber its Cowal gold project ob­tained reg­u­la­tory ap­proval to in­crease the plant pro­cess­ing rate by 31 per cent from 7.5 mil­lion tonnes per an­num (mtpa) to 9.8 mtpa.

The $45 mil­lion ex­pan­sion in­volved im­ple­ment­ing a sec­ondary crush­ing cir­cuit at the pro­cess­ing plant, and the de­vel­op­ment of an In­te­grated Waste Land­form (IWL) to fa­cil­i­tate stor­age of tail­ings over the life of mine.

Mr Klein said the ap­proval to in­crease the pro­cess­ing plant was “a sig­nif­i­cant step” to­wards achiev­ing its ob­jec­tive of in­creas­ing Cowal’s an­nual pro­duc­tion rate to more than 300,000 ounces per an­num.

Cowal cur­rently had a mine life through to 2032 with drilling ac­tiv­i­ties set to ex­tend mine life at ore bod­ies out­side of the main E42 pit, in­clud­ing E41, E46 and Gal­way/Re­gal.

A Float Tails Leach project, which was ex­pected to in­crease re­cov­er­ies by be­tween 4 and 6 per cent, was also on sched­ule for com­mis­sion­ing in the De­cem­ber 2018 quar­ter.

Evo­lu­tion had also sub­se­quently green lit a $60 mil­lion un­der­ground de­vel­op­ment at the Mt Carl­ton mine, which in­cluded a Stage 4 pit cut-back and plant mod­i­fi­ca­tions.

Mt Carl­ton al­ready had a mine life to at least 2025, and an ex­pan­sion would al­low pro­duc­tion from a higher grade Link zone to be brought for­ward.

Mr Klein said he was “highly con­fi­dent” that the ini­tial un­der­ground re­serve could be ex­panded, with ad­di­tional drilling to be un­der­taken once the un­der­ground de­vel­op­ment was in place, to fol­low up on sev­eral promis­ing drill in­ter­sec­tions that were not cur­rently in­cluded in the un­der­ground re­serves or re­sources.

“Mt Carl­ton is a very high mar­gin as­set which has been a stand­out in Evo­lu­tion’s port­fo­lio,” he said.

“The mine has gen­er­ated over $100 mil­lion in net mine cash flow in each of the last three years. The un­der­ground de­vel­op­ment of the Link zone en­sures the con­tin­ued pro­duc­tion of high mar­gin ounces.”

The com­pany was cur­rently await­ing reg­u­la­tory ap­proval for the project, with first ore sched­uled from the un­der­ground in FY21.

Evo­lu­tion was also un­der­tak­ing an earn-in JV into An­dromeda’s Drum­mond early stage gold project in north­ern QLD, 50km south­west of Mt Carl­ton.

Un­der the deal, Evo­lu­tion could earn a 51 per cent in­ter­est in the project by mak­ing a cash pay­ment of $300,000 and spend­ing $2 mil­lion on ex­plo­ration over two years.

At the com­ple­tion of this first stage, Evo­lu­tion could earn a fur­ther 29 per cent by mak­ing a cash pay­ment of $200,000 and spend­ing $4 mil­lion on ex­plo­ration over two years.

Look­ing Ahead

With a busy year ahead, Mr Klein said the com­pany’s fo­cus re­mained on pri­ori­tis­ing mar­gins over pro­duc­tion growth.

In FY18 the com­pany pro­duced 801,187 ounces of gold at an AISC of $797 per ounce and in FY19 was sched­uled to pro­duce be­tween 720,000 and 770,000 ounces at an AISC in the range of be­tween $850/oz and $900/oz.

“We are a rel­a­tively young com­pany and we are build­ing one that we be­lieve is both unique and dis­tinct,” Mr Klein said.

“In the seven years since our in­cep­tion the com­pany has grown a rep­u­ta­tion as a trans­par­ent, con­sis­tent and re­li­able gold pro­ducer.

“Our bal­ance sheet is strong, our as­sets are gen­er­at­ing sub­stan­tial cash flow and our busi­ness is now well po­si­tioned to pros­per through the cy­cle.”

Image:IMARC.

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