Evolution Mining to Develop Another Cornerstone Asset as It Acquires Red Lake Gold Complex?

Gold prices are trending down, and gold miners are anchoring themselves to face any possible headwinds. After a strong bull run, the gold spot is now retracing back and exerting pressure on ASX gold stocks; however gold miners such as Evolution Mining Limited (ASX: EVN), Resolute Mining Limited (ASX: RSG), Kirkland Gold Corporation Limited (ASX: KLA), etc., are expanding their portfolio and diversifying the assets to attain low-cost production.

While we previously discussed all the above-mentioned stocks expect Evolution, let us discuss how Evolution Mining is placing itself to face any possible headwinds ahead.

To know about the stance of the above-mentioned stocks and to track the progress across their quality assets, Do Read: ASX Gold Stocks Under Pressure Despite Progress Across Quality Assets- RSG, KLA, and SAR

Evolution Mining Limited (ASX: EVN)

EVN is an ASX-listed gold explorer and producer with key assets like Mungari, Cowal, Mt Carlton, Ernest Henry. While the bullion market was filled with the news of Kirkland acquiring Detour Gold Corp in Canada, Evolution Mining also moved towards the acquisition of a gold complex, in the mining-friendly jurisdiction, Canada.

In an announcement to the stakeholders on 26 November 2019, EVN revealed that the company bagged an agreement to acquire 100 per cent of the Red Lake gold complex through its wholly-owned Canadian subsidiary.

The company inked an agreement with the global giant- Newmont Goldcorp Corporation, which makes EVN second Australian gold miner to secure business with Newmont in recent times.

Recently, Saracen Mineral Holdings Limited (ASX: SAR) had entered an agreement with Barrick Gold Corp to acquire its stake in the Superpit Gold Mine, which is operated by Newmont.

To know more about the recent acquisition of Saracen, and its impact on the company, Do Read: Saracen To Acquire Superpit Gold Mine, and Replace Barrick Gold in KCGM JV With Newmont

Red Lake, which is an underground gold mining complex in Ontario, Canada, contains Rake Lake and Campbell complexes with each containing an underground mine and related processing facility, and the Cochenour mine.

The prospect is a high-grade underground mine with long-life and outstanding exploration potential with historic grades crossing 20 g/t of gold. As per the company, the prospect is an under-capitalised asset, which further provides the company with an opportunity to leverage on the successful track record in asset optimisation.

The current Mineral Resources of the prospect stand at 7.0 million ounces with an average grade of 11.2 g/t of gold (including Reserves). The current Ore Reserves of the prospect is at 2.1 million ounces of gold with an average grade of 7.0g/t.

In the calendar year 2018, the gold production from the mine stood at 276,000 ounces with an average all-in sustaining cost of USD 988 per ounce. The production from the Red Lake is forecasted to produce 150,000 to 160,000 ounces of gold with an average all-in sustaining cost (or AISC) of about USD 1,600 per ounce.

Since the production started in the Red Lake in 1949, the Canadian gold complex produced over 25 million ounces of gold with an average grade above 20g/t of gold.

EVN would pay USD 375 million in cash to Newmont upon closing the deal, and another USD 100 million upon new resource discovery. The company decided to invest USD 50 million on the exploration at the Red Lake along with an investment of USD 100 million on existing operations.

The USD 50 million would be invested by EVN over the first three-year of the acquisition, and the transaction along with its associated costs would be funded by a new Senior Unsecured Term Loan of AUD 600 million from the syndicate of lending banks of the company.

EVN’s Turnaround Plan

The company identified various improvement opportunities in the revival of the Canadian Gold Mine- Red Lake concerning to the cost reduction, improved production, and extended mine life. As per the company, the turnaround phase of Red Lake would witness an elevated AISC position amid low production levels and the required capital investment.

However, the company intends to achieve an annual production of 200,000 ounces per annum with an average AISC of USD 1,000 per ounce post the completion of the turnaround plan and anticipates the Red Lake to become a cornerstone asset.

Improvement Scope Across Mining, Processing, and Exploration

At the mining front, EVN intends to improve drill and blast practices to improve the mining recovery with reduce dilution, improve mining fleet efficiency and effectiveness, and improve geological data management.

On the processing front, EVN intends to optimise the processing plants by consolidating processing facilities and also intends to improve the gold recovery, and the company plans to install and start the Acacia reactor. The company would further introduce the ore sorting technology and improve the utilisation of existing plant capacity.

On the Exploration front, EVN has identified significant near mine targets and would be aiming to explore further to increase the mineral profile.

Red Lake Exploration Potential

Red Lake is among the largest, high-grade prospect in North America with significant production since commencement and large head grades. The company intends for a drill program of over 100,000 metres per annum with the highest priority at the Upper Main Zone and INCO at Cochenour, the Aviation Complex at Red Lake, and HG Young.

Contingent Consideration

The Contingent Consideration which comprises of USD 100 million also include an additional payment of USD 20 million per one million ounces of new Mineral Resources discovered;

• The company further added it to the existing resource base, which is now subject to a cap of an additional 5 million ounces of new Mineral Resources or USD 100 million in total, over a 15-year period.

Market Response

The market reacted positively to the news, and the stock of the company witnessed an increase of over 2.36 per cent on 26 November 2019 and further carried the momentum and is up 5.6 per cent and trading at AUD 4.12 as on 27 November.

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