Jake Kleins philosophy – It's much better to produce less gold at higher margins and make lots of money. Their margin for this qrt was $1470 oz.

The quarterly was a positive long term story with some problems in the short term. Full year production was downgraded to 650K ounces (vs 700-760K previously) so a big miss but understandable in the context of Red Lake being behind on production and weather and Covid impacts at Mt Rawdon and Cowal. Plenty of positive signs and good commentary around each of their mines. Group AISC was $990 oz for the qrt and full year guidance is $1135-$1195. Good to see that inflation, wage increases are being contained and managed well. Evolution reminds me of the duck on water, looks like its doing nothing but underneath its kicking away and forward momentum is coming. I am satisfied the downgrade is mainly due to timing and one off things, so no biggie.

The positives-

Buying Ernest Henry from Glencore is already paying itself off, in this qrt alone the mine generated 17% of the purchase price. Mainly due to increased copper production, tripled to 13332 T (4-6K previous qrts). This gave an AISC for this mine of -$2001 oz.. I like the increased exposure to copper that this mine provides. Original FY guidance for EVN copper production was 23Kt, full ownership of this mine gave them 13KT in this qrt alone. The commentary is that they are excited about this assest – excited about the geology, mine life extensions and the cash generation. Can’t argue with that in a gold mine!

Red Lake – I was getting a bit nervous about this acquisition over the last 2 qrts where production was only 19-23K oz/qrt, (75K oz YTD vs original FY guidance of 165K) but this update and the associated commentary relieved some of my  concerns and does show the potential of the mine and that it is moving in the right direction. They acknowledge that they are 12 months behind where they wanted to be in this transformation but are guiding for >40K oz per quarter going forward. The commentary around this mine that they knew it was undercapitalized when they bought it and it’s a process of removing the bottlenecks, improving the ore grade and building the confidence at the mine site so it can consistently deliver at high rates. They mentioned how they want to maintain steady state production (40K/qrt base) with step ups over time rather than trying to push it hard to make up for lost production, hence the downgrade. Seems like a sensible approach to me. Good honest commentary around how they overestimated their ability and the time it would take to turn it around, but they are confident it is a quality long life mine and it is moving in the right direction. This includes even simple things like improving haulage logistics -- replacing the existing slow electric locomotives with diesel that has enabled a 47% increase in ore haulage.

Existing guidance is for 200K oz for Red lake in FY23, but commentary suggests this will probably be revised down – my guess is it will probably be 160-180K oz given that they want 40K oz per qrt to be there new base target for red lake. AISC are still high ($2394 oz) but I expect these will reduce as grade improves and production ramps up. They are making progress on all of their revised milestones/timelines and they still have a mill onsite that is unused so plenty of scope for production increases.

Mungari – Good commentary around the ‘One Mungari’ and the cost improvements created by the assimilation of the Kundana and East Kundana and the shared equipment /workforce.

Cowal – Impacted by weather and COVID

Mt Rawdon – Feasibility study for converting mine to pumped hydro when mine life due end of FY23. Sounds like a good option to reuse the pit. Production affected by weather this quarter and instability in the north wall and resulted in lower grades being processed.

Overall, I am happy to sit back and collect the dividends while the mine improvements happen and am expecting this one will re-rate strongly when Red Lake starts to deliver. I also don't give a high probability to the gold price declining below $US1800 oz and see it more likely to be above $2000 over the next few years.