Evolution boosted by rising gold price, rainfall

Evolution Mining says fears of water shortages at its Cowal gold mine have eased, as it benefits from a rising gold price.

Evolution Mining boss Jake Klein. Picture: Hollie Adams

Evolution Mining says rainfall and the completion of a new water pipeline have eased the immediate concerns its flagship Cowal gold mine in NSW could run short of water, as the company’s mines churned out cash as the gold price climbed.

Evolution released its quarterly production report on Thursday, posting a 3 per cent fall in gold output to 165,502 ounces for the quarter as it processed lower grade ore stockpiles at Cowal.

But the immediate threat to Cowal posed by the savage drought in NSW has receded, with Evolution saying the combination of solid rain and the completion of earlier work to reduce Cowal’s reliance on external water sources, worth about $6m in the quarter, was paying off.

“Work continues to further reduce the reliance on fresh groundwater offtake through accessing subsurface saline water source,” Evolution said.

But the gold price boosted its financial position, with lower costs at all of its other operations boosting its position as the company looks to accelerate capital works to take advantage of the strong gold price.

Evolution delivered mine operating cash flow of $257.4m for the quarter, up from $233.1m in the December period, and net mine cash flow of $159.7m, up from $144.4m.

The company said it had brought forward capital works at Cowal and its Mt Carlton mine in Queensland boosting its planned spending from $195 to $235m to $265 to $275m for the financial year.

Evolution said group gold production, including its newly acquired Red Lake operations in the US, is expected to be around 725,000 ounces at an all-in-sustaining cost (AISC) of about $990 an ounce, at the top end of previous guidance.

The company said none of its operations had been materially affected by the coronavirus crisis.

RBC Capital Markets analyst Paul Kaner said Evolution’s production figures were softer than expected, with higher costs as a consequence, but the rising gold price meant the company was still churning out cash.

“Evolution’s FY20 group (production) guidance is unchanged while AISC is expected to be at the top end of the guidance range (A$990/oz), suggesting some underlying cost pressure – this, however, could be driven by lower copper prices and lower by-product credits at Ernest Henry,” he said in a client note on Thursday.

“We continue to think Evolution’s strong cash flow generation, consistent track record and lower risk assets are likely to appeal to investors and the company is well placed, in our view, to withstand potential disruptions associated with COVID-19, given their diversified portfolio, strong balance sheet and limited FIFO operations.”

Evolution shares closed up 8c, or 1.6 per cent, on Thursday to $5.07.