Evolution Mining: A strategy for growth

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 07 Mar 2017   Posted by admin


Mt Carlton project. All images: Evolution Mining.

 

By Elizabeth Fabri

 

BETWEEN six and eight projects is an ideal number of assets to have within a portfolio to remain a globally competitive mid-tier gold company, Evolution Mining chief executive Jake Klein has said. This strategy has seen the company become Australia’s second largest ASX-listed gold miner, and recently complete an $880 million economic interest in the Glencore Ernest Henry operation.

Since Evolution’s establishment in late 2011, through the merger of Catalpa Resources and Conquest Mining and acquisition of Cracow and Mt Rawdon, the miner has carefully followed this portfolio tactic.

“With quite a few assets you need to be a good seller as well as a good acquirer to be successful over the long term,” Mr Klein said.

In 2015 the miner acquired Cowal and Mungari; last September it let go of Pajingo mine to make room for a 30 per cent stake in the world-class Ernest Henry mine, and the acquisition of Newcrest’s Marsden project, which was soon to be confirmed.

The company currently had six operating mines to its name and an economic interest, with each of its projects performing strong and in line with the company’s three year guidance out to FY19.

“They’re progressing very, very well,” Mr Klein said.

“The last quarter we produced 217,812 ounces, our C1 costs were down 22 per cent, and  our all in sustaining costs were 15 per cent down to $900 an ounce.

“If you convert that to $US dollars we’re now one of the lowest cost producers in the world.

“And what pleases me most is that we have through our consistent strategy of wanting to upgrade and improve the quality of the portfolio, over the last 24 months have recalibrated our portfolio to long life low cost assets, particularly Cowal, Ernest Henry, and Mungari.”

 

Project updates

 

Cowal

 

Evolution Mining’s Cowal project had its name up in lights last month with news it had received approval to extend mining operations out to 2032.

In November 2016, Evolution submitted a modification application and comprehensive Environmental Assessment (EA) to the NSW Department of Planning and Environment to extend operations.

On 9 February, to Evolution’s delight, the application was approved.

“Obviously we were very pleased to get that approval; It’s a very important approval,” Mr Klein said.

“What pleased me most about it was during the public consultation period, there were 65 submissions from local governments and interested parties and all of them were supportive of extending it.

“That I think speaks huge volumes for the engagements with the community and the outstanding environmental management track record that the mine has developed.

“That allows us now as we’ve publically said to consider the next phase of the mine life and we’re doing studies that will be put to the board this quarter and we’re hopeful that we can make an announcement this quarter that will outline our plans for the future of Cowal.”

Located near West Wyalong 50km from Sydney, the mine was acquired from Barrick Gold in 2015 and has been performing exceptionally well.

The mine consists of crushing, two stage grinding, sulphide flotation, regrind, and CIL recovery, and employed about 400 full time employees and contractors.

In the December quarter the mine achieved record production of 71,903oz at an AISC of $815/oz.

Recent mining activities focused on the Stage G cutback, as well as the completion of Stage H definition drilling.

The Stage H drilling confirmed the presence of a large, richly mineralised zone.

On 16 February, Evolution Mining announced its board had approved investments for the E42 Stage H cutback and the Dual Leach Project which would extend mine life by eight years and increase production by 1.2 million ounces.

 

 

Cowal E42 pit

 

Mungari

 

In FY17, Mungari will receive the largest allocation of Evolution’s exploration spend.

The operation, 600km east of Perth (20km west of Kalgoorlie), is made up of the Frog’s Leg and White Foil mines, and has a process capacity of 1.7mtpa.

Frog’s Leg was operated as an open pit mine in 2004 and 2005, with underground mining beginning at the site in August 2007.

White Foil was mined briefly in 2002-2003 and 2010-2011 before open pit operations recommenced in 2014 following construction of the Mungari plant.

In the December quarter Mungari produced 41,645oz of gold, with exploration drilling totalling 167 holes for 22,724m across the tenure.

Of this amount, Frog’s Leg underground produced 6 per cent more ore tonnes at a 40 per cent higher grade than the September quarter, which was largely attributed to access to higher grade stopes in the Mist orebody.

A drill platform for the Mist orebody will be developed in the June 2017 half to test the resource at a further depth.

A high-grade, laminated vein was also intersected in a diamond hole 1km east of Frog’s Leg, similar to the Raleigh deposit  further north, with work now ongoing to analyse results.

At White Foil, mining in the open pit continued to focus on Stage 2b and Stage 3 with total open put material movement increased by 13 per cent to 2.9mt at Stage 2b despite unfavourable ground and water conditions.

 

Mt Carlton

 

Production at Mt Carlton was in steady state, with 25,674oz of gold produced in the December quarter, in line with the 25,544oz produced in the September quarter.

Costs had improved significantly with C1 cash costs of $277/oz and an AISC of $604/oz, compared to the September result of C1 $323/oz and AISC $779/oz.

150km south of Townsville in Queensland, the mine began production in July 2013 with a mine life that could extend to FY22.

In December, construction of concrete civils for the gravity recovery gold circuit had begun, and commissioning was expected in the March quarter.

Evolution had also continued mining of the Stage 3a western end, and in December began first blasting of the Stage 3b pre strip.

“Recent drilling at Mt Carlton has confirmed continuity of high-grade mineralisation beneath the V2 pit,” the company stated.

“The new results will be used to evaluate a range of pit extension and underground mining options.”

 

Mt Rawdon

 

Evolution’s Mt Rawdon mine in Queensland also had a strong quarter; producing 25,983oz of gold at a C1 cash cost of $656/oz and AISC of $898/oz.

Located 75km south-west of Bundaberg, the single open pit mine had been in production since 2001, and was acquired by Evolution Mining in 2011.

This year, the mine was working towards achieving its FY17 guidance of between 90,000oz and 100,000oz, with current activities focusing on the progression of the Stage 4 cutback.

“In the March 2017 quarter work will focus on waste movement from the south western sections of Stage 4 cutback,” the company stated.

“Ore to the mill will be predominantly supplied from the northern sections.”

The project was scheduled to continue out to FY26 with a remaining life of mine strip ratio of 2:1.

 

Cracow

 

Also in Queensland, Cracow was one of Evolution’s highest cash flow producing mines with a long track record for reliable production.

In production since 2004, the mine produced 19,763oz of gold at a C1 cash cost of $782/oz, and AISC of $1283/oz for the December quarter.

“A total of 136kt of ore was mined at an average grade of 4.77g/t gold,” the company stated.

“Primary ore sources were the Kilkenny and Empire ore bodies [and] grades are expected to improve in the June 2017 half with the increased production from Kilkenny transverse stopes and Empire 1854 level.”

A total of 2609m of drilling was completed in the quarter that tested seismic targets within the Phoenix South Corridor and on the southern 2D2R seismic line.

 Cracow Underground 

 

Edna May

Back over in the West was Edna May; Evolution’s open pit mine that utilised conventional drill blast, load and haul methods.

Production for the last quarter came in at 18,588oz at a C1 cash cost of $1350/oz and AISC of $1478/oz; a slight slump from the 20,012oz produced in the September corresponding period.

“A full review of the operation was undertaken during the quarter with a number of management changes made,” Evolution stated.

“As a result of this review, a plan is being implemented to materially improve mobile fleet productivities.

“Steps have been put in place to target higher volume open pit mining by removing Bore 6 in the North Cutback and completing mining at the base of the pit.”

The company anticipated material movement from the open pit to increase to 1mt per month in the June half year.

In addition, the rehabilitation of the mine’s underground infrastructure continued with an extra 918m of the decline completed.

The Stage 1 Underground Development received board approval during the March quarter last year, and began development in June.

“Development of the underground mine remains on track with first production expected in early FY18,” Evolution stated.

 

Acquisitions

 

Ernest Henry

 

On 1 November 2016, Evolution completed its economic interest in Glencore’s Ernest Henry mine in Queensland.

Under the deal, Evolution would have a 30 per cent stake in the mine, and receive 30 per cent of copper and silver payable, and 100 per cent of gold payable production.

Mr Klein said the deal was undoubtedly a “tremendous breakthrough” for the company as it looked at enhancing its portfolio.

“The Ernest Henry transaction, at $880 million was the most significant transaction we’ve undertaken – it was also one of the most complex but it will prove and is proving to be one of the best,” he said.

 “We’ve consistently said that we have wanted to improve the quality of our portfolio and there’s no doubt that the Ernest Henry deal did that.

 “It was a different deal; it was challenging to negotiate but most importantly demonstrated our willingness and capacity to collaborate.

 “Both the counter party Glencore and ourselves are very pleased.”

The asset was expected to deliver gold production at a very low AISC across the 11 year mine life.

In the December quarter, two months of gold production at the mine came in at 14,257oz at an AISC of ($114)/oz.

 

Marsden

 

In addition, Evolution Mining was currently finalising its acquisition of Newcrest Mining’s Marsden copper-gold project.

On 17 October 2016, the miner announced it had entered a binding agreement with Newcrest to acquire the project, with an upfront payment of $3 million followed by a further $7 million contingent on a decision to mine.

“There is still some regulatory approval required but that’s just due process,” Mr Klein said.

“We acquired it because it’s the most significant known deposit around the Cowal region.

“It was really for strategic reasons to simply acquire an additional ground position that was available from Newcrest at the time.

“We have no immediate plans but will consider it in the long-term future of Cowal.”

 

Outlook

 

Looking forward to 2017 and beyond, Mr Klein said he was confident the future for Evolution would be bright, and the company would comfortably deliver its FY17 guidance of between 800,000oz and 860,000oz.

“We are working on extending the mine life for the operating permits at Cowal to 2032,” he said.

“When we acquired it, it had an eight year mine life and now has potentially a 15 year mine life, and we think it will extend beyond that.”

Mr Klein said the Ernest Henry transaction also gave Evolution another decade long asset based on reserves.

“It has an 11 year mine life just based on reserves, so average quality of our portfolio has improved to the point where we have an average eight year mine life in our portfolio of six operations and the Ernest Henry asset,” he said.

“We’re very confident of both future and our current capacity to deliver to the expectations that we’ve put out there to the market.”