All images: Evolution Mining.
BY ELIZABETH FABRI
WITH an absence of distressed sellers in the gold industry, Evolution is putting the brakes on acquisitions – for now – instead focusing on organic growth and achieving debt free status.
If gold and copper prices remain where they are today, Evolution Mining could be debt free by the end of the calendar year, according to executive chairman Jake Klein.
In the last two and a half years the miner has slashed more than $687 million in debt from its balance sheet and returned $190 million to shareholders in dividends.
What’s more, group All-In Sustaining Costs (AISC) were cut by 20 per cent to $784 per ounce in the last 12 months, making Evolution one of the lowest cost gold producers in the world.
So as Evolution nears net cash, the question is – what’s next for Australia’s second largest gold miner?
After an active couple of years in the M&A space inking landmark deals with larger miners, such as Glencore and Barrick Gold, Mr Klein said investors could expect “more of the same from Evolution” through its continued drive to improve the quality of the portfolio.
Naturally, an acquisition was the next possible play after the divestments of Pajingo in late 2016 and Edna May in September last year.
But acquisition opportunities that fit the bill were few and far between in the current market, with miners less motivated to sell at the right price when gold prices have been so favourable.
And even as Evolution nears a ‘debt-free’ position, Mr Klein was cautious of not chasing growth for growth’s sake.
“We have a lens through which we are looking at everything; does it improve the quality of our portfolio (acquisition or divestment), and is it accretive to our shareholders,” Mr Klein said.
“It is the second one which presents a bigger hurdle today because for it to be accretive to shareholders there are really two scenarios where it can be in our view.
“One is where there is some distress or you have a motivated seller, and that was largely in 2015 and 2016 when the larger resources companies needed to deleverage, and they sold some assets; our acquisition of Cowal and our economic interest in Ernest Henry are good examples of that.
“The second scenario is where our geological or discovery team believes there is more upside than what is currently defined in the resources and reserves, and that is still an opportunity but it requires a geological call.”
Currently, Evolution operates five wholly-owned mines in NSW, QLD and WA, as well as an economic interest in Ernest Henry in QLD.
Its roots lie in Australian soil, but the miner was not shy of venturing overseas if the right geological opportunity presented itself.
“It’s difficult for us to see where we add value to a South American opportunity so that’s not an area of focus,” Mr Klein said.
“But we do have experience in Asia in our team, so we’d say it would have to be for a wonderful geological opportunity to compensate for the country risk or the increased geopolitical risk.
“North America too presents an interesting opportunity because the geopolitical environment is complimentary to ours and is of an equal status.
“We have some experience in our team [in North America] but we’d be looking for a partnership or a team that is there and capable of executing on the ground there.”
An aerial view of Cowal open pit.
Organic growth
As Evolution patiently keeps an eye out for the next acquisition opportunity, it will focus on internal growth, increasing its exploration budget to $40 million in FY18.
Mine life extensions were the biggest pillar in this strategy, especially at projects such as Cracow and Mungari where there is less time on the clock.
“We’ve gone from a mine life on average in our portfolio in 2014 of just over five years, to now (based on our last reserves statement a mine life) close to eight and a half years,” Mr Klein said.
“We’re working very hard on extending mine life and certainly replacing reserves continues to be a focus and then discovery; we’re investing about $30 million in discovery in addition to the resource and reserve definition drilling that we do as well.”
Aggressive drilling campaigns continue across the board with total drilling of 39,024 metres (resource definition) and 37,417 metres (exploration) in the December quarter alone.
Discovery drilling at Cowal is also expanding a newly identified zone of mineralisation, at Mungari resource definition drilling at the north end of White Foil nears completion, and at Cracow infill drilling confirmed strong grade continuity on the Coronation-Imperial-Empire.
Out of the projects, Cowal had the longest mine life to 2032, followed by Ernest Henry, Mr Rawdon, Mt Carlton, Mungari and Cracow.
At Cowal, the company will spend about $300 million over four years, with plans for a Stage H cutback scheduled to be complete in FY21, and a Float Tails Leach to begin commissioning in the second half of this year.
“The Float Tails Leach project will improve recoveries at Cowal by between 4 per cent and 6 per cent,” Mr Klein said.
Investments in new technologies such as this will continue, he added.
“We’re at the early stage of that journey, and that’s what makes me optimistic that there is still tremendous opportunity in front of us,” Mr Klein said.
“We are starting to use big data much more efficiently, but trying again to be focused on ensuring that we’re not just overwhelmed by big data but we’re capturing the right data and using that data.
“There’s been areas where we have been investing. [I’m] not sure you would call it new technology, but things that are making step changes in our profitability at the mine sites, like a gravity circuit at Mt Carlton that now captures 20 per cent of the gold without it needing to be concentrated in China.”
Lowered AISC costs have also been achieved through transitioning to owner-operator at some sites, and introducing a centralised procurement function that has enabled Evolution to aggregate procurement power and deliver savings.
Mungari mine in WA.
Making mining attractive again
Despite the progress made internally, industry-wide issues still weigh on the company; predominantly the emerging skills gap brought on by the lack of graduates choosing a career in mining, and existing workers that have either left the industry or falling behind as technology advances.
“I think that’s a huge issue for the industry as a whole,” Mr Klein said.
“If you look at the number of graduates coming through mining engineering and geology; we are at crisis levels.
“I think its incumbent on all of us in the sector and Government to work together as partners in making mining a more attractive industry and career for young people.
“For example we have a graduate program where we take on graduates; that’s a start.”
Speaking on International Women’s Day, Mr Klein also pointed to the disparity between the number of male and female workers in mining.
“We only have 15 per cent female participation in the mining industry and obviously they represent 50 per cent of the workforce or the population, so we are missing a lot of talent,” he said.
“I think it is about the attractiveness of the industry and making it a place where people feel they have a career…because if every time there is a downturn in prices and people start getting laid off and retrenched, you’re not going to win the trust of people.”
Mr Klein said he has actively tried to introduce a culture where everyone in the company acts like an owner; a strategy he said attributed to recent reductions in operating costs.
“I’m not saying we have completed that journey (we still think we have more opportunity), but if you can get every person in the organisation to act like an owner and treat the business as their own, you’re a long way towards getting an efficient and productive operation,” he said.
“We also talk about being different and not just doing what we may have done previously, or whatever everyone else is doing.
“We talk about keeping an open mind to opportunities, and very importantly we talk about acting boldly; if you want to be different, you are going to have to act boldly.
“From my perspective we also want to be humble and not believe that the success we achieved to date is going to be sustainable without a lot of hard work and effort, and that the journey is still ongoing.”
