Evolution Mining warns of falling production at Mt Carlton mine
Evolution Mining shares sank after a warning of falling gold production from its Mt Carlton mine in Queensland.
Evolution Mining shares closed down on Friday after the company warned of falling gold production from its Mt Carlton mine in Queensland, cutting its output forecasts and lifting projected costs.
Amid a softening gold price on Friday as the risk of conflict between the US and Iran appeared to ease, Evolution shares closed down 23c, or 6 per cent, to $3.68, after the company said drilling at its Mt Carlton mine suggested it may not deliver the promised ounces of gold later in the year.
Mt Carlton was scheduled to contribute 95,000 to 105,000 ounces of gold to Evolution’s output in the 2019-20 financial year, originally tipped at 725,000 to 775,000 ounces.
But the discovery that gold mineralisation at the open pit and underground is not as thick as expected forced the company to pull back production expectations to 70,000 to 75,000 ounces for the year, with total output tipped at the bottom end of its earlier range.
Evolution also warned it may be forced to reconsider the total gold reserves at Mt Carlton, a decision that could potentially impact on the mine’s planned life.
RBC Capital Markets analyst Paul Hissey noted that Mt Carlton was a relatively small part of Evolution’s portfolio, he said the announcement could undermine the usually “solid and consistent performances at Evolution’s large assets” such as Cowal and Ernest Henry.
“We continue to think Evolution’s strong cash flow generation is likely to maintain appeal for generalists seeking gold exposure given their track record and diverse asset base,” he said.
“However, we are precluded from a more constructive view given the company’s flat/deteriorating fundamentals (production and costs) and the medium term capital requirement in the smaller, more-mature asset base, which might not necessarily yield the quantum of incremental improvements from Evolution we have seen in the past (in effect diminishing returns).”
Evolution also warned of the possibility of increased water restrictions at its flagship Cowal mine in drought-stricken NSW, although the company said it was progressing its hunt for alternate sources of water in the region surrounding the mine.
Drought-hit regions in western New South Wales are currently operating under water restrictions that, while severe, have not cut the water supply to Cowal, Evolution said.
“However, due to the ongoing severe drought conditions and resulting water crisis currently being experienced in NSW there is potential for these water restrictions to increase,” the company said.
Evolution said it had begun installing a second pipeline to increase the availability of water from nearby borefields, with new bores expected to be ready for commissioning in the June quarter.
It has also stepped up exploration for new sources of underground water, which Evolution says it should be free from water restrictions imposed by the state government.
Evolution was hit hard on Friday, like other gold miners that have announced production downgrades amid an elevated gold price. But it came amid a broader sell-off of gold stocks as the risk of further conflict between the US and Iran appeared to ease late in the week.
The gold price surged briefly above $US1600 an ounce on Wednesday, crossing the line for the first time since 2013, after Iran’s missile attack on two US bases in neighbouring Iraq. But it subsequently softened and was trading just below $US1550/oz late on Friday.
More Coverage
