Evolution shares jump on $1bn deal with Glencore for Ernest Henry copper mine
Evolution Mining’s shares jumped almost 10pc on the news of its $1bn deal with Glencore to seal full ownership of the Ernest Henry copper mine.
Evolution Mining’s $1bn deal with Glencore to seal full ownership of the Ernest Henry copper mine received a warm welcome for the market on Thursday, with the company up almost 10 per cent after announcing the deal.
The deal, announced late on Wednesday, extends Evolutions 2016 $880m acquisition of the rights to all future gold revenue from the mine, along with 30 per cent of future copper and silver revenue, giving the company operational control of Ernest Henry.
Evolution boss Jake Klein told analysts on Thursday the company had seized a window of opportunity to take ownership of Ernest Henry as Glencore reviewed its Australian base metals portfolio.
“We had kind of a standing arrangement with Glencore that if ever they contemplated selling this asset, we would be very interested in it. And they kept the word and they did,” he said.
The deal closes a busy year for Evolution’s business development team, with Ernest Henry the company’s third major acquisition of the year – it also acquired Northern Star’s Kundana gold assets near Kalgoorlie earlier this year for $400m, and paid $C343m ($275m) for Canada’s Battle North Gold.
Evolution also sold its Mt Carlton gold mine in Queensland to Navarre Minerals.
With three acquisitions to digest, Mr Klein told The Australian the company was likely to sit tight on its current portfolio of assets for a while. And, while the acquisition of Ernest Henry brings a full-fledged copper mine into its asset base, he said the company had no plans to extend its reach further into industrial metals.
“We’re going to remain a gold company. Copper is a great by-product credit,” he said.
“But I’m not going to go down the pathway of expounding the ‘we’re going green’ pathway. We’re a gold company with a green tinge.”
Apart from its own buying spree, Evolution’s latest deal comes hot on the heels of Newcrest Mining’s $US2.8bn friendly offer for Canadia’s Pretium and a slew of contested and friendly takeover battles in the WA mid-tier gold space.
Analysts welcomed Evolution’s latest acquisition on Thursday, with Citi analysts adding 50c a share to their price target on Evolution stock, to $4.70 a share.
“The deal is accretive to earnings and should enable Evolution to continue its track record of cost-out at a site previously owned by a major. There’s the bonus of increased exposure to copper (circa 60,000 tonnes per annum) to deliver low-cost gold,” Citi said in a client note.
Macquarie analysts also threw their weight behind the $1bn deal, saying it was earnings and value accretive. Macquarie analysts said they believed the transaction would deliver a 6 per cent upgrade to Evolution’s 2022 and 2023 fiscal year earnings.
Shaw and Partners analyst Peter O’Connor said the Evolution acquisition was a “nice change” from recent deals announced by the company’s competitors.
“A smart deal – sensible. Logical, on strategy and on first glance very accretive,” he said.
“Such a nice change from other recent deals in the metals and mining sector – all sensible but none overwhelmingly compelling value.”
Evolution shares closed up 39c, or 9.7 per cent, at $4.40 on Thursday.
