Ground Breakers: Evolution out the gate with first mining dividend of reporting season

Evolution shares fall despite profit lift as gold prices tumbled below US$2000/oz overnight
Miner faces race to hit FY24 guidance in second half
Materials sector drops as gold and battery metals stocks face sell off, despite price respite for nickel and copper

Despite a punishing December quarter punctuated by a big miss at its struggling Red Lake mine in Canada that has analysts questioning how Evolution Mining (ASX:EVN) will make its 789,000oz guidance mark, higher gold prices have driven a big lift in profit that bodes well for the sector this reporting season.

Evolution reported 319,377oz of gold production at an all in sustaining cost of $1615/oz in the first half of FY24, bankrolling a 53% increase in underlying NPAT to $158 million compared to the same period in FY23.

Its underlying EBITDA rose 28% to $573m as Evolution maintained an interim dividend of 2c per share fully franked, returning $39.5m to shareholders.

Operating mine cash flow rose 30% to $618m, with EVN ending the quarter on a cash balance of $191m, with gearing reduced from 32.8% to 29.7%.

That was driven by a reduction in capital intensity and higher gold prices, which rose 16% to $3000/oz.

Meanwhile exploration at Ernest Henry, Mungari and Cowal and the acquisition of the Northparkes copper-gold mine in New South Wales have seen EVN increase gold mineral resources by 8% to 32.7Moz and copper 134% to 4.1Mt, with gold and copper reserves up 15% and 100% respectively to 11.4Moz and 1.3Mt.

EVN aims to produce 789,000oz of gold and 62,500t of copper at an AISC of $1340/oz, something it insists it is still on track to do despite revealing output at its Red Lake mine in Ontario would be 25% lower than planned.

“The first half of FY24 saw Evolution return to net cash generation, realising the benefit of capital invested in growth projects over the past couple of years,” EVN MD Lawrie Conway said.

“This will see us deliver increased cash flows in the second half of FY24, and beyond, as we deliver on our commitment to building free cash flow, deleveraging and increasing shareholder returns. Based on the positive cash generation and outlook for the year, we have declared our 22nd consecutive dividend of 2.0 cents per share.

“We are also pleased to announce sizeable increases in our annual Mineral Resource and Ore Reserve estimates today, which incorporate JORC compliant Mineral Resource and Ore Reserve estimates for Northparkes. The feasibility study for the E22 orebody is progressing and we anticipate the outcomes of that study to be available early in the June 2024 quarter, which will inform future mining options at the asset.”

However, the dividend remaining unchanged may have disappointed some investors. RBC had — before EVN’s December quarter result — predicted total dividends would lift from 4c total in 2023 to 7.8c this year.

Gold prices also fell below US$2000/oz on strong inflation numbers in the US.

Northern Star Resources (ASX:NST), the other major locally based and listed gold miner on the ASX, will report its half-year results on February 22, the same day as Regis Resources (ASX:RRL).

Rare joy for base metals

Nickel prices on the LME saw a rare lift overnight as Glencore revealed it would shut the Koniambo nickel mine in New Caledonia, having already planned to stop funding its share of the operations from the end of this month.

Glencore said it had run Koniambo for over a decade since its takeover of XStrata without ever generating a profit from the operation, pumping US$4 billion into the asset.

“This decision follows several months of extensive discussions and negotiations with relevant government and other key stakeholders,” the mining giant said in a statement.

“Even with the French government’s proposed assistance, high operating costs and current very weak nickel market conditions means KNS remains an unprofitable operation.”

The news will thrust a spotlight even harder onto the Australian nickel sulphide industry and even major supplier Indonesia, where higher cost operators will be lossmaking.

Prices rose 1.4% overnight to US$16,261/t for three month LME nickel contracts, while copper rose 0.3% to US$8260/t.

“Copper led the gains amid rising expectations that China’s copper market will tighten in the months ahead. A tight concentrate market, created by recent mine closures, have seen smelter processing fees fall to a record low of USD21.90/t,” ANZ’s Kishti Sen said in a note.

“Following years of relentless growth, Chinese smelters are now being forced to postpone new plants, bring forward maintenance and even cut production outright amid heavy financial losses. There are also expectations that demand from China’s infrastructure and manufacturing sectors will offset the downturn in the property sector.”

But heavy losses across the gold sector and lithium miners saw materials stocks fall 1.28% on the open.