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Evolution Mining Ltd Acquire Red Lake Gold Complex In Canada

Jordan Baird

Jordan Baird is the head ASR Wealth Advisers client services desk and has been with the organisation since 2017. He first started investing in his early years. While he believes that investors should leave no stone unturned he has a particular interest in trading based on broad macroeconomic trends along with specific analysis of innovative up-and-coming companies.

Evolution Mining Limited (ASX: EVN) is an Australian gold mining company. Evolution owns five gold mining operations. Three are in Queensland, one in New South Wales and one in Western Australia. Evolution has a market capitalisation of A$6.48 billion.

evolution Mining3

What are the recent developments in Evolution’s activities?

Today (26 November 2019) Evolution announced to acquire 100% of the Red Lake gold complex in Canada from Newmont Goldcorp. In 2018, the mine produced 276,000 ounces of gold at an All-in Sustaining Cost (AISC) of US$988 per ounce. However, in 2019, the mine is forecast to produce 150,000 – 160,000 ounces of gold at an AISC of approximately US$1,600/oz. In this period, production was impacted due to limited investment on development capital imposed by Newmont Goldcorp. Also, water ingress migration at Cochenour resulted in a three month pause in operations with mining resuming in October 2019.

Evolution has agreed to pay Newmont Goldcorp US$375 million in cash upon closing of the transaction, and up to an additional US$100 million payable upon new resource discovery. The transaction will be funded with 100% debt by a new five-year A$600 million term loan through Evolutions syndicate of lending banks.

Additionally, Evolution’s management notes that they are committed to invest US$100 million on existing operations and an additional US$50 million in exploration at Red Lake over the first three-year period following the completion of the transaction. This investment is planned to increase total production at the mine either to 2018 levels, or exceeding 2018 levels.

What is the outlook for Evolution?

The outlook for Evolution is positive.

Evolution FY20 guidance is as follows:

  • Production for FY20 (Excluding Red Lake’s contributions) is 725,000 – 775,000 ounces.
  • ASIC for FY20 (Excluding Red Lake’s contributions) is A$890 – A$040 per ounce.
  • Evolutions FY20 guidance is expected to be updated on completion of the Red Lake transaction.

Evolution’s acquisition of the Red Lake gold mine could turn Evolution from a mid-tier gold producer to a top-tier gold producer in the coming years.

EvolutIons management notes:

Evolution is excited to be adding Red Lake to its portfolio, providing the Company with a high-grade, long life gold mine in Canada. We have been actively looking at assets in Canada since 2017 as we believe it is a country with low geopolitical risk, high geological prospectively and a strong mining culture. Red Lake is an under-capitalised asset which, through a committed investment in development and exploration, is intended to become a cornerstone asset in the Evolution portfolio.

What is the market reaction of Evolution’s announcement?

The initial market reaction to Evolution’s announcement is positive. Evolution’s share price is up around 2.1% and is currently trading at A$3.89. Evolution has a forward P/E ratio in the low-twenties and an annual dividend yield of 2.5% (fully franked).

 


 

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 purpose 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 proceeding. 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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