June 2024: $4.20 price target if copper turns around and rises, however if copper stays down for a while, I'd expect EVN's SP to fall to around $3 - or to settle somewhere between $3 and $3.50. So let's split the difference and call it $3.25.

Two of their mines produce more copper than gold so it pays to understand that Evolution are not a pure gold play any more, they are a gold/copper play and both gold and copper price movements will impact them.

I'm not currently invested in them because while I am bullish on copper longer term, I'm not sure if we;ll see substantially higher copper prices in the shorter term - like this calendar year, so while there will be a time to buy EVN for both copper and gold exposure, I do not personally think that time is now (26-June-2024).

17-Oct-2024: 4 months on and I'm bullish on copper now, and I've always been bullish on gold, with good reason - the gold price hit another all-time high overnight - see here: https://www.miningnews.net/precious-metals/news/4370509/gold-record-territory [17-Oct-2024, i.e. today]

I've bought back into EVN last week in real life and then here @ $4.69 on Monday, as (a) they're back in a strong uptrend on the back of rising prices and a more positive outlook for copper now, and (b) I am personally more positive on the outlook for the copper price to rise from here now that I've done a bit of digging.

Copper is one of the base metals that has so much demand that China has little control over the price - they do manipulate it via hedging and hoarding physical copper (stockpiling for later use), which you can't do with lithium I hear, not for more than 12 months anyway, but China has other methods of controlling lithium prices, mostly via their own in-country production, which seems to be moderating now in terms of some Chinese Lepidolite processors curtailing production finally, after running at losses for a long time.

I have also started to become less bearish on lithium, but that's another story - no direct investments in lithium producers just yet, but RIO's takeover of LTM (Arcadium) is a positive signal, even though I don't rate RIO's record of M&A as being anything better than disastrous. RIO actually buying counter-cyclically for a change (i.e. NOT at the top of the market) is a welcome change, not that I own any RIO directly, and likely never will, but it's good to see both BHP and RIO being a lot smarter in recent years with capital allocation decisions - after burning billions of in prior years on failed takeover attempts as well as completed takeovers where they overpaid at or very close to the top of the market.

But back to Evolution Mining (EVN) - I have NOT liked them in recent years because of their copper production - with two of their mines (Northparkes and Ernest Henry) both being copper-gold mines, rather than gold mines that also produce copper. To be clear, they both produce far more copper than gold, both in dollar value terms and of course in actual material produced. This means they have been hard to compare cleanly with other gold producers who do not use that copper production as byproduct credits to reduce their gold production costs (AISC) like Evolution do - and in fact they claim their AISC for both Northeparkes and Ernest Henry are both negative, i.e. less than $0 per ounce, because of those copper byproduct credits. While that's certainly legal, it tends to be misleading because it reduces their total group AISC (all-in sustaining costs) across their full suite of mines to make them look like low-cost gold producers when their gold mines that do NOT produce more copper than gold are NOT low cost:

• Mt Rawdon (Qld): September quarter AISC - and FY25 YTD AISC: A$2,918/oz
• Mungari (WA): September quarter and FYTD AISC: A$2,674/oz
• Red Lake (in Canada): September quarter and FYTD AISC: A$2,267/oz.

However, with NEGATIVE AISC of A$(1,815) and A$(1,629) for Northparkes and Ernest Henry respectively, due to copper production profits being deducted from gold production costs, Evolution's GROUP AISC ends up making them look like low cost gold producers who can make statements like this:

"On track to deliver guidance of 710,000 - 780,000 ounces of gold and 70,000 - 80,000 tonnes of copper at an AISC of A$1,475 - A$1,575 per ounce."

I've mentioned 5 of their mines there, but they have a sixth one, and it is by far their best gold mine: Cowal, a world-class open pit gold mine located 350km west of Sydney in NSW and operated by Evolution since July 2015. Cowal produced 83,245 ounces of gold in the September quarter (or 333 Koz annualised) at an AISC of A$1,581/oz. Even their lowest cost gold mine and best asset, Cowal, which is damn fine gold mine, no doubt, has costs that are slightly higher than their guidance range for their Group AISC, so hopefully this all explains why many people, including me, see this method of deducting copper profits off gold costs - using the byproduct credits method - to SIGNIFICANTLY lower a company's GROUP costs in terms of gold production, to muddy the waters somewhat and make it hard to do apples v. apples comparisons between EVN and other gold producers. It's easy enough to forgive when a company produces a relatively small amount of copper or other byproducts, but EVN is produces a LOT of copper:

17,561 tonnes of copper in 3 months is more than a "byproduct" of gold production.

"Deceptive" is a strong word, so I won't use it.

So, that's one thing I do not like about EVN - the way they calculate their gold production costs. The other thing is that they do have debt, but they have been reducing that debt at a good clip:

Source (the above AISC numbers and charts/tables): EVN-September-2024-Quarterly-Report.PDF:

So, here's what I DO like (now) about EVN, and why I've bought back in the past week:

1. I'm now bullish on both gold AND copper and EVN produce both;
2. Rising prices: The gold price keeps making new record highs and the copper outlook and sentiment around copper has certainly improved now;
3. Red Lake no longer a basket case: EVN's one asset outside of Australia, Red Lake in Ontario, Canada, seems to be finally coming good:  Red Lake produced 37,319 ounces of gold and generated record quarterly operating and net mine cash flow of $67 million and $27 million respectively in the September quarter;
4. Jake Klein is probably still Australia's second best gold industry deal maker in terms of buying good assets at good prices when sentiment around gold is poor/weak and then selling EVN's least-best assets for good prices when gold sentiment is strong - Jake used to be #2 behind Bill Beament, but Bill is at DVP now, and doesn't own any producing gold mines (although Develop does have mining services contracts with two Aussie gold miners), so I would say Raleigh Finlayson at Genesis has now taken over that mantle as Aussie Gold's best deal maker and empire builder, although it's still early days at Genesis (GMD) - but I also include in my assesment what Raleigh managed to achieve at Saracen (through to the merger with NST back when Bill Beament ran NST) which was very impressive, so it's now Raleigh at #1 and Jake at #2 - IMO;
5. A "major" Aussie gold miner: With US-listed Newmont Corporation - the world's largest gold mining company - acquiring Australia's largest (at the time) gold miner Newcrest Mining last year - Evolution Mining (EVN) has moved up from being Australia's third largest gold producer to now being Australia's second largest gold producer (still behind Northern Star Resources - NST) - and that's just their gold - not even looking at their copper production, which is becoming significant these days - and Australia's best gold producers do have a global reputation for lean operations, i.e. low costs, and superior management - so when money is moving into gold in terms of producers rather than physical bullion, EVN will be in the mix, so will get bought by global fundies and other investors looking for that gold and/or gold/copper exposure;
6. Exploration success: They're finding more gold and copper - see their announcement from yesterday:  ‘Exploration Success Continues to Unlock Growth Potential across the Portfolio.’ which is important because their existing mines are finite - they don't last forever. During the September quarter the Group spent $12 million on exploration. Ongoing discovery drilling continued at Northparkes, Cowal, Mungari and Ernest Henry, drilling commenced at the Cloncurry North earn-in joint venture and fieldwork was completed on the Lake St Joseph and October greenfields projects in Ontario, Canada; and
7. Minimal Hedging: Evolution will continue to benefit from a rising gold price with minimal exposure to gold hedging at 85,000oz over the next two years at A$3,220 per ounce. There is no copper hedging in place. 

Here's their September quarter production numbers and cashflow:

That bottom right number is significant - they had just over $1 Billion of total liquidity at Sept 30th, so they're well positioned, despite having some debt. Jake may indulge in some M&A however I would only expect him to do that with distressed assets at firesale prices when we're up here - with A$ gold just topping $4,000/ounce. He's not one to overpay for assets generally speaking - Red Lake being an exception to that rule.

Here's where we're at today with the Aussie and US$ gold prices:

A$ gold prices on the left, and US$ gold prices on the right.

And below we can see that EVN has been lagging behind NST for most of the past year in share price appreciation terms, but they've been catching up lately:

I've added the physical gold bullion GOLD ETF (which is really an ETP - an exchange traded product rather than an exchange traded fund) there for comparison. NST has been ahead of physical gold (i.e. GOLD) all year, however EVN has been underperforming relative to (physical) GOLD since mid-January up until the past few weeks when EVN have spiked up.

The ASX 200 Total Return (or Accumulation) Index (XJO) has produced a circa 18% return over the past 12 months, less than half of what EVN and NST have done in terms of share price appreciation alone.

Both EVN and NST are up over +40% over the past year, with good reason. The gold price has done most of the heavy lifting for them, and now we're seeing improved sentiment around copper impact EVN positively in addition to the improved sentiment around gold miners - i.e. investors now looking more to gaining exposure to gold through miners who own large amounts of gold that is mostly still underground rather than from investing in gold bullion through physical gold bars or gold bullion ETFs/ETPs.

Precious metals seems to be a good place to be at this point, as long as you have decent management and decent assets, located in decent locations.

And in EVN's case, being a gold/copper miner, with two copper/gold mines and another four gold mines, plus some development projects, the improved copper sentiment is turbocharging their recovery.

And that's why I'm raising my target price for EVN today, and disclosing that I'm back on the J. Klein train.