Consensus community valuation
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:
- I'm now bullish on both gold AND copper and EVN produce both;
- Rising prices: The gold price keeps making new record highs and the copper outlook and sentiment around copper has certainly improved now;
- 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;
- 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;
- 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;
- 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
- 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.
17-Jan-2024: I hold EVN in my SMSF, but nowhere else, so not here on Strawman.com. I wasn't planning to take part in their SPP, which formed part of the CR for their recent acquisition of 80% of the Northparkes Copper-Gold Mine from CMOC Group Limited, but a few things have changed now. [I'm still not planning to participate despite those changes]
[03-Sep-2024: Note: Not holding EVN now, anywhere]
Firstly - there's this: Extension-of-Share-Purchase-Plan.PDF released on Thursday 11th Jan (last Thursday) which advises that the closing date for the SPP that was announced on 5 December 2023 will be extended from its original closing date of 16 January 2024 (yesterday) to 5.00pm on Tuesday 30 January 2024.
Eligible shareholders participating in the SPP will be able to purchase shares at the lower of:
- A$3.80 per Share, being the same price paid by institutional investors under the Placement announced on 5 December 2023; and
- a 2.5% discount to the 5-day volume-weighted average price of Shares traded on the ASX up to, and including, the revised SPP Closing Date (30 January 2024) (rounded to the nearest cent).
Which is a good thing for EVN shareholders participating in the SPP because they're now likely to be paying a good deal less than $3.80 for those shares now due to today's announcements:
Wednesday 17 January 2024:
Firstly: December-2023-Quarterly-Report-EVN.PDF
Secondly: Exploration-Success-Continues-at-Cowal-and-Ernest-Henry.PDF
The first one did the damage. EVN closed down -65 cps at $3.10, so down -17.33% today.
The market was in no mood for bad news - here's the sector movements today:
Gold sector down -5.27% - that's a BIG move. EVN's selloff would have contributed to that for sure because they are the third largest constituent of that gold sector. They should be the second largest after NST, but the sector still has NEM in it, Newmont Corporation, even though they are listed in the USA and are not an Australian company. Because Newcrest (formerly NCM) WERE Australia's largest gold producer, and Newcrest shareholders were paid in Newmont (NEM) shares when Newmont acquired Newcrest last year, they've (S&P have) decided to keep those NEM CDIs in the Australian gold index.
EVN was the worst of a bad bunch today...
The fact that the majority of our goldies closed substantially lower than the four physical gold ETFs (see above) is a clear sign of seriously negative sentiment across the sector today.
Pantoro (PNR) released the following update last week (on the 8th): December-2023-Quarter-Production-Update-PNR.PDF
And their SP fell -7.55% on the day and then another -6.12% the following day.
Today they released this at 9:33am: Underground-Development-to-Commence-at-Scotia.PDF
And their SP fell another -6.25%. Those that follow PNR (and that would be a small group, because they're a small goldie) were clearly expecting or at least hoping for better, or more, and dumped them when they didn't get what they wanted from those updates. Pantoro finished CY 2023 @ 5.7 cps and they're now (in the middle of January) some -21% lower at 4.5 cps. I have held them in one of my real money portfolios previously and do occasionally have a small trade in them with some loose change here - because of the lack of brokerage fees.
After the market closed, at 4:54pm, they lodged this: Addendum---Underground-Development-to-Commence-at-Scotia.PDF
Meanwhile Evolution Mining (EVN), one of our gold majors, closed at $4.14/share on December 4th, the day before they announced the Northparkes transaction and capital raising, and today they closed at $3.10, which is -25% lower.
Some details from today's update:
- Evolution’s Chief Operating Officer (COO), Bob Fulker has decided to leave the Company to pursue other opportunities. Mr Fulker will finish at the end of March. A search to identify an appropriate replacement is underway.
- Gold production for the quarter was 161,073 ounces at an All-in Sustaining Cost (AISC) of $1,618 per ounce (US$1,052/oz) compared to the previous quarter which was very similar:
- Despite some positives elsewhere, the market is probably focusing more on the continuing basket case that is Red Lake:
- Evolution Mining's Red Lake underground gold mine in north-western Ontario (Canada) is their only gold mine located outside of Australia (they have 4 gold or copper/gold mines here in Australia - Cowal, Ernest Henry, Mungari and Mt Rawdon, plus their 80% of Northparkes in NSW as well), and Red Lake is certainly their problem child. The update (see above) shows that for the December quarter, their production at Red Lake (gold produced) fell by -4%, their AISC (costs) rose by +31% from A$2,552 to A$3,343/ounce (above the gold price, so Red Lake is losing money), cashflow decreased by -11%, and sustaining capital (which is included in that AISC) increased by +32%. I've included the whole page (above) on Red Lake from today's quarterly report, for some context. That is one acquisition that Jake Klein made that has NOT worked out as planned. Not yet anyway.
Appendix 1 contains their December 2023 quarter and their FYTD (financial-year-to-date) production and cost summaries. Below is page 14, which is the second page of Appendix 1. Page 13 was the production breakdown. Page 14 (below) is the cost breakdown for the December quarter:
The full report can be read here: December-2023-Quarterly-Report-EVN.PDF
You can see there how wide the range is across their minesites for their costs - both AISC and AIC. Their AISC ranges from negative (A$5,677)/ounce at Northparkes up to positive A$3,343/ounce at Red Lake. It is only because of those byproduct credits for copper from Ernest Henry and Northparkes, which both produce far more copper than gold, that EVN manages to get their Group AISC down to A$1,618/ounce. All of their mines also produce Silver, but the silver production is not particularly material, as shown on page 13 (reproduced below).
Cowal, EVN's flagship copper/silver mine in NSW which produces around 45% of all of EVN's annual gold production, is clearly their best asset. Cowal has an AISC of just $1,226/oz after silver byproduct credits and it's a high quality gold mine for sure. And I'm sure Ernest Henry and Northparkes are great copper mines too, that also produce some gold. But looking across the suite of mines that EVN operate, the quality varies greatly, as do the costs.
Source: https://evolutionmining.com.au/cowal/
Cowal is an excellent mine that is expanding with heaps more gold there at good grades, but I believe the market isn't entirely comfortable with how some of EVN's other assets are travelling.
I'm not adding to the EVN position in my super or selling any - it's a long term holding in what was Australia's third largest gold producer when I bought that position a few years ago (@ $2.83/share) - they are now Australia's second largest goldie after Newcrest got taken out by Newmont last year.
But I don't intend to buy any EVN in any of my other portfolios, including the virtual one I have here. Other goldies like NST and GMD look heaps better to me at this point.
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03-Sep-2024: Update: I sold out of EVN earlier this year after deciding I wanted more pure gold exposure rather than gold/copper which you get with EVN with Ernest Henry and Northparkes both being copper mines that also produce gold but being regarded by EVN as gold mines that have a negative ASIC because of the copper "byproduct credits" reducing the cost of gold production to a negative number. When you have your cost of gold being negative because of copper production, i.e. it cost you LESS than nothing to mine the gold, then clearly those are copper mines that also produce gold and should not be regarded as gold mines that also produce copper, but it's legal, and they're doing it. I just find it very misleading in terms of trying to make cost comparisons across the gold industry and including EVN, so I tend to exclude EVN from my gold sector universe now because it's just too hard.
The main problem for me is that if you REMOVE the copper production entirely, EVN is NOT a low cost gold producer. They are ONLY a low cost gold producer because they use their copper sales to reduce their gold production costs.
That said, for people who want exposure to gold AND copper, EVN would likely be a good option to consider. I just don't want that copper exposure right now - I may later, but not now.
EVN's latest report was apparently very good, and the market liked it, especially their bullish outlook, but I'm not interested in them now, so I haven't looked at it in any detail. Their SP closed at $3.81 on the day before they reported (August 13th) and they've traded as high as $4.40 and closed as high as $4.36 during the following fortnight, but they closed at $4.11 yesterday. So a bit of a reality check perhaps.
Their share price may well be driven as much by copper prices and sentiment than gold prices and sentiment now.
[not held]
10-August-2023: Today: Jake Klein joins us to Share the Evolution of the $8b Gold Major - YouTube
Their Show Notes:
"We’re at the end of 3 big days at Diggers, and we’ve got a great interview to share. Please bear with our lower-than-usual production standards because the value of this one is phenomenal."
"Jake Klein, the executive chair of Evolution Mining (EVN), one of Australia’s largest gold miners, came on Money of Mine to share his thoughts with us. We had a great chat about gold, copper, M&A, previous acquisitions, and a bunch more."
"We hope the Money Miners enjoy the discussion!"
Source: https://www.youtube.com/@Moneyofmine
CHAPTERS
0:00 Preview
0:29 Introduction
2:26 Interview with Jake Klein
24:09 Wrap-up
You can click on the time stamp to the left of the "Chapter" title above to go straight to that point.
DISCLAIMER
All Money of Mine episodes are for informational purposes only and may contain forward-looking statements that may not eventuate. The co-hosts are not financial advisers and any views expressed are their opinion only. Please do your own research before making any investment decision or alternatively seek advice from a registered financial professional.
---
I hold EVN shares. They are Australia's third largest ASX-listed gold miner, and after NCM is delisted from the ASX later this year (after the completion of US-based-Newmont's acquisition of Newcrest) - Evolution (EVN) will become Australia's SECOND largest ASX-listed gold miner. Jake Klein is one of the highest profile "thought leaders" in the Aussie gold sector, and is always worth listening to - I feel the same about Bill Beament but Bill is out of gold now and into mining services, although I believe Bill's new company (DVP) will end up owning some mines themselves as well, a business model that could end up being similar to MinRes' (MIN's) business model. I don't think Jake Klein is going anywhere - he's definitely still a gold-bug!
In this interview with the MoM podcast boys at "Diggers" (or D&D) in Kalgoorlie today, Jake discusses Evolution (of course) but also why he's bullish on gold and the gold price from here. This interview was recorded after Jake's D&D Presentation, which by all acoounts was very well received.
EVN also released its Quarterly yesterday.
the headline results are fine:
Production is up a bit (both for gold and copper) and cash flow has improved
Brilliantly, AISC reduced massively. But....
The future of EVN rests on Red Lake, and things there are continuing to go from bad to worse. The only reason the headline figures are any good is because of this:
The AISC from Ernest Henry has created a weirdo -$3748.
I think in a previous post @Bear77 explained the reasoning behind this which has to do with the contract with Glencore for copper sold, when EVN bought the mine. Anyhoo, it is a big masking agent for Red Lake which is not going to plan.
In the report though, there are good reasons why it isn't going to plan just now, but will improve shortly:
And even though this is apparently, entirely normal, expected and nothing to see here:
So, heads have rolled. There have been many quarters of disappointment regarding Red Lake
I have now lost faith in EVN. I think that "the great white hope" of Red Oak is not going to eventuate and will be selling out completely tomorrow.
Bit sad, after nearly 20 years or so of holding EVN from a penny stock.
But..never fall in love with a stock, and always re-assess in the light of new evidence.
05-Sep-2021: This is really a reply to Barney's Business Model/Strategy Straw for EVN. If you like Minelab, they are owned by Codan (CDA) - have a look at their share price graph. I own Codan shares and Evolution Mining Shares. I also own a few other gold stocks, and some gold ETFs, so you could say I'm bullish on gold longer term. However, you have to realise that gold producers are a leveraged play on gold. When the gold price is rising, most quality listed gold producer's share prices will rise by MORE than the gold price rises, and when the gold price falls, particularly if it is in a downtrend, the share prices of most gold producers will fall FURTHER than the gold price in percentage terms. When you invest in a gold producing company, you are investing in what they own (which is primarily gold, albeit most still underground or in pits or in ore stockpiles) and the company's ability to deliver shareholder returns in the form of profits, dividends, and share price increases. Gold companies are generally valued with a good discount off the gold that they own that is still underground, because there is risk associated with them being able to efficiently extract that gold (including getting it to their plant and processing it through their plant) and then sell it while the gold price remains accomodative.
Also, with a lower gold price, lower grades of gold - in terms of ounces per tonne of ore (dirt/rock/whatever it's in) - may not be economic to dig up and process - the cost might be higher than what they will get when they sell the gold - but a higher gold price means that lower grades become worth processing, even though they are going to be costlier to process. For example a company might have an AISC (all-in sustaining cost) for their gold production of $1,200/ounce, however if the gold price rises to A$2,800 (Perth Mint gold price is currently around A$2,450/ounce), the same company might be able to mine additional lower grade ore that might cost $1,500 or $1,800/ounce to process and still make heaps of money. A higher gold price can means that a company can include more of their ore as minable gold. They use a cut-off grade for calculating what they've got, and the higher the gold price, generally the lower the cut-off grade can be.
So what that means is that without anything else happening other than the gold price rising, a gold producing company can get a double positive, in that the gold they were going to mine anyway becomes worth more, and they may also be able to mine and process additional gold that they already know they have but that was previously not economical (cost-effective) to mine.
The same effect works in reverse when the gold price falls substantially. They may have to raise the cut-off grade to remain profitable which may mean they now have less minable gold - i.e. less gold that is cost-effective to mine.
All that said, Evolution Mining is the third largest ASX-listed gold producer (behind Newcrest and Northern Star), and they currently have the best portfolio of mines I think, certainly the cheapest AISC (costs) of the three. Also there have been two star performers in terms of superstar gold company managers in Australia in the past 10 years and Jake Klein at Evolution is one of those. The other is Bill Beament who used to run Northern Star (NST) but has now left to run Venturex (VXR) who are currently focussed on base metals (not precious metals like gold). Jake and Bill have excellent track records of very smart dealmaking, mostly buying quality yet underperforming assets during the gold-price-lows, then turning those assets around and working them hard and smart, and also offloading assets when the gold price is high and prices of gold mines are even higher. With Bill stepping away from the gold industry for the time being, that leaves Jake (at EVN) as the #1 smartest gold mine manager in Australia - in the opinion of most industry participants I would imagine.
If you're going to buy a gold producer, buy them when the share price is at the lower end of their range - and EVN is back to near March 2020 (COVID-19 crash) lows. Also buy a quality gold producer that makes money and has very smart management - and EVN ticks those boxes also.
On page 12 of their recent FY21 Full Year Results presentation, they stated that they have low leverage at less than 0.5x and modest gearing at 15% (net debt to equity ratio) plus no material debt repayments until 2026, followed by some material repayments due in 2029 and 2032. Their average debt maturity is 7 years. I'm not worried about their debt. They also have a lot of cash and a lot of cashflow.
But Barney, if you want to go look for gold yourself, you can't beat a Minelab gold detector, they are the best in the world!
