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Evolution Mining Ltd: FY21 result in line with expectations and positive three year outlook

Timothy Anderson

Timothy Anderson is a contributor with the Australian Stock Report and is currently in his final year of studying a Bachelor of Applied Economics and a Bachelor of International Relations and Politics at the University of Canberra. Tim has a genuine passion for economics, specifically in macroeconomic analysis including how certain macroeconomic policies and indicators affect financial markets and the economy, as well as how these factors affect personal investment strategies. Tim currently holds RG146 Tier 1 Generic Knowledge qualifications.

Evolution Mining Ltd (ASX: EVN) is an Australian gold mining company. Evolution owns six gold mining operations - three in Queensland (Ernest Henry, Mt Rawdon and Mt Carlton) and one in New South Wales (Cowal), Western Australia (Mungari) and Canada (Red Lake). Evolution has a market capitalisation of A$7.3 billion.

 

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What are the key points from Evolution’s FY20 report?

Evolution’s underlying net profit after tax fell to A$354 million (FY20: A$405 million). Revenue for FY21 decreased by 4% to A$1,864 million (30 June 2020: A$1,942 million).

The higher achieved gold price of A$2,369/oz was offset by a decrease in produced ounces for the year to 680,788oz (FY20: 746,463oz). Gold sales fell in FY21 (mirroring lower production) primarily due to the sale of the Cracow mine in Queensland. Evolution reported All-In Sustainable Costs (AISC) in FY21 of A$1,215 per ounce (FY20 A$1043/oz), with the rise mainly due to rising costs at Red Lake and processing lower grade ore at other sites. Evolution’s had net bank debt of A$460 million at 30 June 2020, with modest gearing of 15%.

Evolution will pay a final FY21 fully franked dividend of 5.0 cents per share (FY20: 9 cents per share). This results in a record full year dividend for FY21 of 12 cents per share fully franked. The full year dividend equates to a payout rate of 64% of FY21 group cash flow.

What is the outlook of Evolution in FY21?

Evolution is forecasting FY22 gold production of 700,000–760,000 ounces (FY21: 680,788 ounces). AISC in FY21 is expected to be in the range of A$1,220 – A$1,280 per ounce (FY21: A$1,215 per ounce). Assuming an $A/$US exchange rate of 0.73, Evolution’s forecast FY21 AISC equates to approximately US$890–US$935 per ounce.

Investment in sustaining capital in FY21 is forecast to be between A$125–A$155 million, mainly to be spent at Red Lake and Cowal. Major capital expenditure in FY22 is guided to be in the range of A$440–A$510 million with most of it to be spent on expansion projects at Cowal and Red Lake.

What is the three year outlook for Evolution?

Evolution provides a three year outlook, with rising production and flat costs. Production is planned to increase to from 680,788 ounces in FY21 to over 940,000 ounces over the period to FY24. Growth will be largely driven by the commencement of the Cowal underground mine in late FY22 and execution of the Red Lake transformation plan. Provided the gold price remains flat in $A terms, this will result in rising profitability over the next three years.

What is the market reaction to Evolutions report?

Evolution’s FY21 result is broadly in line with market expectations. Evolution’s share price is up around 2% and is currently trading at A$4.05 (19 August 20210). Evolution trades on forward P/E in the low-twenties with an annual dividend yield of around 2%.


Disclaimer:

This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)
(“ASR”). ASR is part of Amalgamated Australian Investment Group Limited (AAIG) (ABN: 81 140 208 288 Level 13, 130 Pitt Street, Sydney NSW 2000).

This article is provided for informational purposes only and does not purport to contain all matters relevant to any particular investment or financial instrument. Any market commentary in this communication is not intended to constitute “research” as defined by applicable regulations. Whilst information published on or accessed via this website is believed to be reliable, as far as permitted by law, we make no representations as to its ongoing availability, accuracy or completeness. Any quotes or prices used herein are current at the time of preparation. This document and its contents are proprietary information and products of our firm and may not be reproduced or otherwise disseminated in whole or in part without our written consent unless required to by judicial or administrative proceedings. The ultimate decision to proceed with any transaction rests solely with you. We are not acting as your advisor in relation to any information contained herein. Any projections are estimates only and may not be realised in the future.
ASR has no position in any of the stocks mentioned.

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