FORMED less than 12 months ago, gold-focussed Evolution Mining plans to become a mid-tier gold producer at a global level within the next five years.
According to Evolution executive chairman Jake Klein, Australia only has one major gold producer among the world’s heavyweights – Newcrest Mining.
Mr Klein said that ASX-listed mid-tier Australian gold producers with annual output of between 400,000oz and 800,000oz were basically non-existent.
“The best place for an investor to invest in the gold space is the mid-tier sector.
“That delivers secure returns more consistently than other alternatives: senior producers and juniors. The seniors struggle to provide meaningful growth and the juniors struggle to fund their developments and develop operational predictability, which investors want,” he said.
“The mid-tier space can deliver operational predictability and meaningful growth. What we are seeking in Evolution is to create a vehicle that delivers both of those and we are doing it. That was the concept and construct behind Evolution.”
Evolution was formed in October 2011 through the merging of Conquest Mining and Catalpa Resources. Both companies were ASX-listed and it was an “all-scrip merger of equals”.
The merger also involved the acquisition of Newcrest’s Queensland-based gold projects, Cracow and Mt Rawdon. In return, Newcrest would hold a 38 per cent stake in the final entity, Evolution. “It was a shared vision. Newcrest recognised their assets, Cracow and [Mt] Rawdon, which are good assets, were too small for [Newcrest’s] portfolio and would be better housed in a mid-tier vehicle.”
Mr Klein said that he approached Newcrest about 18 months ago, after it merged with Lihir Gold. Lihir had been the majority owner of Mt Rawdon and Cracow; after the merger, the projects became part of Newcrest’s portfolio.
“Catalpa had a 30 per cent interest in [Mt Rawdon] so [it was] a logical partner. Also, Newcrest didn’t want to own more than 50 per cent of the [final] vehicle [Evolution Mining], which, if we hadn’t included Catalpa, they would have. It made sense [to include Catalpa], because it came out with the right shareholding structure, where Newcrest was significant, but [did] not [own] over 50 per cent,” Mr Klein said.
“Cracow and Rawdon each only respectively contributed 3 per cent of Newcrest production, whereas with Evolution, they contribute 25 per cent each.”
Asset portfolio
“Our portfolio consists of five assets, all of which are 100 per cent owned: four of which are in Queensland, with the fifth in Western Australia,” Mr Klein said.
“Four are operating assets, with Mt Carlton under construction [and] scheduled to be commissioned by the end of the calendar year. On a combined basis, they will produce in excess of 335,000 ounces this financial year [2011-2012] growing towards 450,000 ounces with the introduction of Mt Carlton.”
The Cracow gold mine lies 500km northwest of Brisbane. It has an initial five-year mine life, with current reserves sitting at 1.1 million tonnes grading 7 grams per tonne gold for 200,000oz of gold. Cracow’s
resources are 4.4mt grading 6.3g/t of gold for 900,000oz of gold. The mine was anticipated to produce up to 107,000oz of gold for the 2011-2012 financial year.
Mt Rawdon is 75km southwest of Bundaberg. It is an open pit gold and silver mine with reserves estimated at 32mt grading 0.89g/t gold and 2.46g/t silver for 900,000oz of gold and 2.5 million ounces of silver.
Mt Rawdon’s current resource is 36.7mt grading 0.87g/t gold and 2.4g/t silver for 1moz of gold and 2.8moz of silver. The mine has an eight-year life and, for the 2011-2012 financial year was expected to produce up to 105,000oz of gold.
In addition to Cracow and Mt Rawdon, Evolution owns 100 per cent of the Pajingo gold mine, 50km south of Charters Towers. Pajingo comprises both underground and open pit operations, and has an initial five-year operating life with reserves of 864,000t grading 5.1g/t gold for 140,000oz of gold. Its resources are 5.4mt grading 4.2g/t gold for 728,000oz of gold. For 2012, expected output was about 70,000oz of gold.
Evolution’s Mt Carlton gold, silverand copper project, 150km south of Townsville, has reserves of 1.3moz of gold equivalent and resources of 2.1moz of gold equivalent, including copper and silver credits.
The total expenditure to bring the project into operation was forecast at $145 million.
The mine has an estimated 12-year life, with production due to begin in the December quarter of this year. For the 2012-2013 financial year, Mt Carlton has an anticipated output of 60,000oz of gold equivalent.
The company’s WA project, Edna May, is 350km east of Perth. Its main open pit deposit has a nine-year life, with reserves of 27.5mt grading 1.1g/t gold for 900,000oz of gold and resources of 51.4mt grading 1.1g/t for 1.6moz of gold.
Evolution posted a 70 per centincrease in Edna May’s underground resources to 1.2mt grading 7g/t of gold for 270,000oz of gold in February this year. The mine is expected to produce up to 93,000oz of the precious metal in fiscal 2012.
“With 7.1 million ounces in resources and 3.5 million ounces in reserves, we have a fantastic platform [on which] to grow our company,” Mr Klein said.
By the end of March 2012, Evolution had a market capitalisation of about $1.2 billion, with $171 million cash at hand.
Strategy for growth
“We are [now] delivering what we aid we would. We’ve created a new vehicle in the gold space: one which is the fourth-largest gold producer in Australia,” Mr Klein said.
“We are in the ASX 200. We have a very good balance sheet. We are funding the development of Mt Carlton from our balance sheet.
We have four mines which we are delivering.
“We want to be the next big thing in the Australian gold sector. We are three steps into our five-year journey. The aim is to grow value for shareholders and to really become a globally-relevant mid-tier gold company with a market cap[italisation] in excess of $3 billion.” Mr Klein said that Evolution would execute this plan via “aggressive exploration”.
“Firstly, we believe there is a good potential around all of our operations.”
Mr Klein said that exploration would be funded from operational cash flow.
“Secondly, we believe that the equity and debt markets are likely to remain difficult for the foreseeable future.”
He added that the company would consider acquiring junior gold companies with “interesting exploration development assets”.
“[Those companies] may well prefer to be part of a group such as Evolution rather than pursuing a solo mission involving high levels of equity dilution or expensive and restrictive debt.
“Thirdly, we see our relationship with Newcrest as a key competitive advantage.”
According to Mr Klein, Newcrest had access, knowledge and information that a smaller company such as Evolution did not possess.
As the two companies already had a relationship, Evolution could obtain knowledge and information that it would otherwise struggle to find.
He added that despite rising costs and contentious legislation, Australia was still a preferable place, compared to other countries, in which to invest. “[These factors have] certainly made it more difficult to be competitive in a global industry, but against a rising tide of resource nationalism…I can tell you from personal experience… [that] Australia represents one of the most secure and robust environments [in which] to secure title and for an investor to be confident that they will be able to mine, without government intervention, what they discover.”
He said that political and taxation uncertainties still existed in other countries such as China and Indonesia, where gold mining was prominent.