The theory of Evolution

0 Comment
 29 Aug 2017   Posted by admin


All images: Evolution Mining.

 

BY ELIZABETH FABRI

 

AUSTRALIA’S second largest gold miner Evolution Mining’s rise through the ranks over the last seven years has been no fluke. The mid-tier miner’s core strategy — or ‘religion’ as it puts it — is to incessantly improve its portfolio by strategically buying and selling assets, building a business that can prosper through all stages of the cycle.

 

Since its founding in 2011 through the merger of Catalpa Resources and Conquest Mining, Evolution Mining has grown a $50 million business into a $3.7 billion heavyweight.

“We started the journey some seven years ago – at that time we were a six-person company with no production,” Evolution Mining executive chairman Jake Klein said.

“Our only mineral asset was the Mt Carlton deposit in Queensland and a feasibility study had just concluded that development of the project would be uneconomic.”

Today, Evolution sports a portfolio of seven operating assets, comprising Cowal, Mungari, Mt Carlton, Mt Rawdon, Cracow, Edna May, and a 30 per cent stake in the world-class Ernest Henry mine.

The company has been making moves within the gold mining industry, capping off the last six financial years with record results, including 844,000 ounces of production in FY17 at an All in Sustaining Cost (AISC) of $905 ($US683) per ounce and $325 million worth of debt repayments.

Speaking on the side-lines of the Diggers and Dealers conference in August, Mr Klein said the secret to building a business that could thrive through the cycle was continuing to assess the value of its portfolio.

“We’re now amongst the lowest cost gold producers in the world,” Mr Klein said.

“When we think of quality we think mainly of two metrics – cost of production and mine life – both of which I am pleased to say we have been able to significantly improve in the past two to three years.

“And whilst our portfolio of assets now has an average reserve life of more than eight years, we would like to get to a point where each of our assets has at least an eight to 10 year mine life in front of it.”

Between six and eight projects was the “ideal number” of assets to have according to Mr Klein, and with seven operating assets to its name, an acquisition or divestment was no doubt on the horizon.

“We think about that all the time; we think about acquisitions, investments, divestments, M&A joint ventures and partnerships all the time,” he said.

Recent media speculation has pegged Edna May as the next project on the block, but

when asked about the future of the project, Mr Klein declined to comment on his plans.

“I’m not going to comment specifically on that, other than to say, we continue to improve the quality of the portfolio and we sold an asset last year [Pajingo], we acquired the interest in Ernest Henry; we’re a dynamic business,” he said.

 

Projects in focus

 

Ernest Henry

 

Evolution’s $880 million economic interest in the Glencore Ernest Henry operation has been dubbed one of its most strategic acquisitions.

Completed in November 2016, the deal involved Evolution securing a 30 per cent stake in the Queensland mine, and receiving 30 per cent of copper and silver payable, and 100 per cent of gold payable production.

“It’s been one of the best- it’s turned out superbly,” Mr Klein said.

“Last quarter we had a net mine cash flow of almost $48 million (on an annualised basis; that’s $150-160 million a year).”

In the June quarter, Evolution’s interest in the project was 24,000oz.

“I think we’d love all deals to be that good,” Mr Klein said.

“A key driver to all our business development is to seek out situations where our interests with the counterparty we are engaging with are complementary rather than competing.

“In Glencore, we found such a counterparty when it was seeking to deleverage.

“Gold was not considered a core commodity for Glencore and we were seeking to add long life, low cost ounces to our portfolio.”

 



Cowal

 

Cowal was the other jewel in Evolution’s crown, acquired in May 2015 from Barrick Gold for $US550 million.

Within 50km of Sydney, the project was the “cornerstone asset” anchoring Evolution’s portfolio.

“A few weeks before we submitted the final, binding offer I asked a senior lawyer acting for Barrick what our chances were of securing this coveted asset,” Mr Klein said.

 

“Bearing in mind that during the sale process Evolution’s market capitalisation was below Barrick’s asking price for the asset; it was a pretty fair assessment when he responded by saying ‘Jake, if you secure this asset you will be the Steven Bradbury of gold mining’.

 

“So, in the tradition of Steven Bradbury, who became the proud owner of a Winter Olympics gold medal when all the leading competitors fell over before him with the finish line in sight, so too is Evolution now the proud owner of the Cowal gold mine.”

In the 24 months the company has owned Cowal, the project has performed exceptionally well, producing 501,000 low cost ounces and generating $322 million of net mine cashflow, or 47 per cent of the purchase price.

An investment of more than $22 million in resource definition drilling has also doubled reserves from 1.6moz to 3.2moz at a drilling cost of only $14/oz.

This year, Evolution also increased mine life at Cowal by eight years to 2032.

In February, Evolution received approval from the NSW Department of Planning and Environment to extend operations out to 2032, after receiving 65 submissions of support.

The project now had a 15-year mine life ahead with strong possibility to expand further.

“Cowal is in a superbly well-endowed belt, and now has a 15 year mine life ahead of us,” Mr Klein said.

“The next phase of opportunity is going to be about drilling out some of the satellite areas and seeing whether those can be brought into the mine life.”

 

Mungari

 

Evolution snared the WA mine and 1.7mtpa processing facility from La Mancha Resources in April 2015, and has undertaken in an aggressive exploration campaign on site since.

In FY17, the project, 20km west of Kalgoorlie, received Evolution’s highest exploration spend, with similar expenditure expected to flow into FY18.

“It’s a great success, there’s some really encouraging results, and we’re very happy with the investment,” Mr Klein said.

In the June quarter, drilling at Emu and Burgundy extended high-grade mineralisation outside of the existing resources, while reverse circulation drilling extended mineralisation northwest of the historic Bent Tree mine.

Aircore drilling south of Blue Funnel mine had also identified a 600 metre long, 120m wide, northwest-trending gold anomaly adjacent to the Zuleika Shear Zone.

On day two of Diggers and Dealers, Evolution Mining Kalgoorlie general manager Simon Jessop took a group to the site to promote the recent exploration finds.

Mr Jessop said Evolution’s improved understanding of the tenement was beginning to “yield results”, and in FY18 the focus would be on Zuleika North (Blue Funnel), Frogs Leg South and Ora Banda.

 

Looking forward

 

While Evolution continues to search for its next Cowal or Ernest Henry, Mr Klein believed the team was unlikely to find the motivated sellers they have had in recent years.

“We recognise that the biggest opportunity for value creation is likely going to come from our existing asset base,” he said.

“However, all options must be on the table.”

One of its most exciting prospects was a $2.5 million investment in the upcoming initial public offering (IPO) of gold explorer Riversgold, and recently announced earn-in joint venture agreement with Terramin Australia over the South Gawler gold-copper project in South Australia.

On 22 June, Evolution entered an agreement with Terramin to provide $4 million in exploration spending over four years for a potential 70 per cent stake in the South Gawler project.

Terramin may then elect to contribute, otherwise Evolution can earn an additional 10 per cent (total 80 per cent) by spending a further $2 million over two years.

“Our geological team has a very favourable view of the geology,” Mr Klein said.

The primary target for the project was an iron oxide copper gold breccia deposit beneath shallow to deep cover.

In terms of a production timeline, Mr Klein wasn’t sure at this stage but remained optimistic.

“In defining our strategy for discovery, we are very clear on what it is we want to find – principally, we are looking for orogenic or epithermal style deposits,” he said.

“We also recognise that partnering with groups who may have superior geological knowledge of a specific area may be mutually beneficial, so we are definitely open for business in this area as reflected in our recent joint venture with Terramin in South Australia’s Gawler Craton and our cornerstone investment in the upcoming Riversgold IPO.”

 

 

Evolution FY17 gold production

Cowal, NSW | 263,015oz

Mungari, WA | 143,820oz

Mt Carlton, QLD | 105,024oz

Mt Rawdon, QLD | 101,331oz

Cracow, QLD | 89,496oz

Edna May, WA | 70,188oz

Ernest Henry, QLD | 60,259oz (eight months)