Evolution Mining shares tank as another slow quarter leads to doubts over annual gold production guidance
The mining firm’s shares take a beating on doubts the company can meet its annual production guidance after a slow first half.
Evolution Mining shares tanked on Wednesday after the company missed analyst expectations across the group’s gold mines and unveiled fresh problems at the company’s Red Lake mine in Canada.
The company’s shares closed more than 17 per cent lower at $3.1o in a weak market on the ASX on Wednesday, after its December quarterly production report disappointed the market, despite a slight improvement over the September period.
Evolution produced 161,073 ounces of gold in the December period at an average all-in-sustaining cost of $1618 an ounce, with production up 2 per cent compared to the September period.
In total, Evolution’s mines produced 319,377 ounces in the first half of the year. The company said it believed it could still hit its annual production guidance of 789,000 ounces of gold, plus or minus 5 per cent – but its operations will now need an extraordinarily strong performance in the second half of the year to meet that mark.
The company will need output of almost 470,000 ounces to hit that mark – an improvement of more than 45 per cent on the first half.
And Evolution will not be able to rely on the hoped-for improvement from its troubled Red Lake mine in Canada, after another downgrade to production expectations from the mine.
Bought in 2019 for $US375m, Evolution had hoped to turn the former Newmont gold mine back into a steady producer of about 200,000 ounces a year.
But Red Lake has never lived up to expectations and Evolution revealed a fresh set of problems on Tuesday, with production hit by ongoing materials handling constraints – an issue the company says is now fixed – and “seismic related” restrictions at a key mining area.
But problems remain at the company’s Canadian mine, with production down 4 per cent to 24,095 ounces and costs up 31 per cent to an AISC of $2908 an ounce.
Evolution slashed more than 25 per cent from guidance for the mine, cutting expectations from 170,000 ounces to a range between 125,000 and 135,000 ounces.
Even that will take a substantial improvement, however, given Red Lake produced only 49,292 ounces in the first half of the year.
And while the company’s flagship Cowal operation in NSW staged an improvement in the December quarter, with production up 6 per cent to 71,848 and AISC down 7 per cent to $1226 an ounce, it will also need a heroic performance in the second half of the year to meet annual output guidance of 320,000 ounces, given the mine produced only 139,709 ounces in the first half of the year.
Evolution managing director Lawrie Conway told analysts on Wednesday he was confident the company could still meet its production promises.
“At the halfway mark, Cowal is actually on plan – or only slightly behind. In the second half, as the underground ramp-up takes place, is where we see that benefit coming through,” he said.
Mr Conway said the company’s Ernest Henry gold and copper mine was also on track to meet guidance expectations, and he expected a second-half improvement in the company’s Mungari operations in WA.
But, while conceding that Red Lake’s performance remained a problem for the company, Mr Conway said the company was not considering cutting its losses and putting the Canadian operation back on the market.
“We’re four years in, and we haven’t gotten to where it needs to be. We have to get it as reliable as the other assets,” he said.
“We still think that the asset can get to where it needs to be. There’s certainly been more urgency over the last six months, and that will continue into the second half of this year.”.
Citi analyst Kate McCutcheon said while Evolution had missed consensus expectations on production and cost by as much as 20 per cent amid “lingering questions over whether the revised guidance is achievable, she believed Wednesday’s sell-off was overdone.
“If Evolution can deliver improved second-half operating performance, we think the stock could outperform. We see the pullback as an opportunity to own leverage to gold,” she said in a client note.
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