Oct 23, 2020

Margins the standout in Evolution’s annual report

Margins the standout in Evolution’s annual report Evolution Mining’s Mt Carlton operation in North Queensland

Evolution Mining has handed down its annual report saying the focus on margin over ounces has delivered record financial results.

The company produced 746,463 ounces of gold last financial year, at an All-in Sustaining Cost (AISC) of A$1,043 per ounce (US$700/oz)1. The company report says,  ‘this continues to rank Evolution as one of the lowest cost gold producers in the world.’

The company has two gold mines in Queensland, Mt Rawdon hear Bundaberg and Mt Carlton north of Bowen and an economic interest in Ernest Henry near Cloncurry. 

Investors should be wary of ‘geopolitical fault lines, the end of co-operative globalism and the re-emergence of populism and nationalism’, said Executive Chairman Jake Klein. 

Sovereign risk had resulted in massive shareholder value destruction in some jurisdictions and was the reason Evolution Mining had concentrated Australia and Canada where the rule of law could be relied on, he said.

“Core to our strategy is our belief that margin matters most,” he said.  “Although all gold companies can sell the gold they produce at the same price, a low-cost ounce of gold is much more valuable than a high-cost ounce of gold. 

“We operate in a very cyclical industry and in the good times we need to be making exceptional profits, like we did in FY20, and when the price is lower we still need to be making an above average return on our shareholders’ capital.

“This is no different to any other business – every dollar we invest of our shareholders’ money must generate a return commensurate with the risk we are taking – not because the gold price has gone up, but because we have invested wisely and added value.”

The report states a mine operating cash-flow up 45 percent year-on-year to A$1.121 billion, net mine cash flow up 48 percent to A$736.0 million and Group free cash flow up 86 percent to A$542.0 million. 

“We also achieved a record underlying net profit after tax of A$405.4 million and a record statutory net profit after tax of A$301.6 million” Mr Klein said. 

“These results enabled a further increase in dividends with a total of A$0.16 per share or A$273.0 million declared for FY20 based on the Company’s policy targeting 50 percent of free cash flow. 

“This equated to a sector leading A$365 per ounce produced being returned to shareholders.” 

Evolution remained focused on prioritising margins over production growth and was forecasting Group gold production in FY21 of 670,000 – 730,000 ounces at an AISC in the range of A$1,240/oz – A$1,300/oz, Mr Klein said.

“Production is expected to rise to 790,000 – 850,000 ounces in FY23 and costs are expected to decline to A$1,125/oz – A$1,185/oz as the Cowal underground comes into production and Red Lake delivers on its transformation plan,” he said.