Evolution Mining (ASX: EVN) shares will be on watch this morning after downgrading its gold guidance.
What is Evolution Mining?
Evolutin Mining was formed in November 2011 and is one of Australia’s largest gold miners. It owns five mines, being Cowal in New South Wales, Cracow, Mt Carlton and Mt Rawdon in Queensland, and Mungari in Western Australia.
Evolution also has a stake in the Ernest Henry copper-gold mine that will deliver 100% of future gold and 30% of future copper and silver produced from an agreed life of the mine area. Outside of the life of the mine area Evolution will have a 49% interest in future copper, gold and silver production.
What gold guidance was downgraded?
This morning Evolution Mining provided an update about its Mt Carlton operations.
An extensive grade control infill program of 204 holes has recently been completed. The improved understanding of the geological controls on grade distribution has ended up reducing the life of mine plan by approximately 75,000 ounces. This reduction represents around 1% of Evolution’s ore reserves. However, it is a material change to Mt Carlton, so an impairment of between $75 million to $100 million will be recognised in FY20.
FY20 gold production at Mt Carlton is now estimated to be around 60,000 ounces, which is a reduction from previous guidance of 70,000 ounces to 75,000 ounces. For FY21, Mt Carlton is now expected to produce around 50,000 ounces.
Management tried to reassure investors by saying since production commenced Mt Carlton has generated $665 million of operating cash flow, repaid the development costs and delivered a return of 19% per year.
Drilling at the Crush Creek Joint Venture project “continues to return exciting results”.
Total FY20 gold production, excluding Red Lake, is now expected to be around 715,000 ounces, 1.4% below previous guidance. The all-in sustaining cost is expected to be $990 per ounce.
Evolution Mining is one of my preferred gold miners with a decent dividend, so if it’s sold off on this news then I’d be willing to buy a small parcel if you’re interested in the company. But I’d only view gold miners as a hedge against market falls – gold miners still face the same issues and risks as other commodity producers like we have seen today.
Disclosure: At the time of writing, Jaz doesn’t own shares in any of the businesses mentioned.