Evolution Mining Downgrades FY20 Production Guidance By 1.4 per cent, Stock Under Pressure

Summary

• The ongoing consolidation in gold, along with the ongoing plunge in the global equity market, is putting pressure on ASX-listed gold stocks, which, like any other commodity-related stock are exposed to dual beta.
• Many industry experts anticipate a normative movement in gold over the long-run, which is now prompting ASX-listed gold players to fast track their exploration in order to lock-in future sales.
• However, the ongoing drive for more exploration has brought some low tidings, for the ASX-listed low-cost gold miner- Evolution Mining Limited (ASX:EVN).
• The improved geological understanding over the grade distribution at Mt Carlton now points toward a reduction of ~ 75,000 ounces from the Life of Mine Plan, leading to a downgrade in the production guidance at the project and the group level.

The gold spot is under consolidation, ranging from USD 1,700 per ounce to USD 1,750 per ounce, turning all eyes on ASX-listed gold stocks, that are currently plunging on the exchange due to the dual beta exposure, i.e., the risk from the commodity space and from the equity front as well.

The equity market is once again trading under pressure amidst the re-emergence of COVID-19 cases across China, which is currently dampening the risk, keeping gold spot afloat above USD 1,700. However, equity markets across the global and domestic front are now taking a throwback.

While the gold spot still stands tall, it has retraced down from its recent high of USD 1,765.94 (as on 18 May 2020), and industry experts anticipate a normative movement in gold over the long-run, which is now prompting many ASX-listed gold stocks to fast track their exploration in order to lock-in future sales at the present high prices.

To Know More, Do Read: Gold Retracement- Gold Exploration Once Again on Agenda- Ramelius and Gold Road

While many miners are fast tracking their exploration programmes , it has brought some low tidings for few players such as ASX-listed low-cost gold miner- Evolution Mining Limited (ASX:EVN).

EVN Records Impairment at Mount Carlton

In an announcement on the ASX on 19 July 2020, EVN stated that it had completed an extensive grade control infill program of 204 drill holes- accounting for 33,000 metres of drilling, in order to inform an update to the resource block model.

However, the Company suggested that the improved geological understanding over the grade distribution at the prospect points toward a reduction of ~ 75,000 ounces from the Life of Mine Plan, prompting the miner to considerably reduce its future production guidance.

EVN anticipates the FY20 gold production at Mt Carlton to mark a decline of 14.28 per cent from the lower range of the previous guidance of 70,000 to 75,000 ounces to stand at 60,000 ounces. Furthermore, the FY21 production is projected to witness a further decline to stand ~ 50,000 ounces.

On the operation counter, the prospect has generated $665 million since commencement, returning all of its initial development capital and subsequent investments, which in turn, marks an average return of 19 per cent per annum.

The estimated decline of 75,000 ounces in LOM represents approximately a unit per cent of the total ore reserves of the Company, and the updated FY20 guidance now reflects a material change to the carrying value of Mt Carlton; thus, EVN has established a non-cash impairment in the range of $75 to $100 million post-tax, which is further anticipated to be recorded in accounts of the financial year 2020.

However, the Company asserted that all options to maximise the future value of the asset are being pursued and drilling at the Crush Creek Joint Venture project, which is just 30km southwest to the prospect and has an option to earn-in 100 per cent interest, is returning encouraging results, which could act as the important ore feed source ahead for the miner.

EVN further estimates the FY20 gold production for the Group, excluding the Red Lake gold mine, to stand ~ 715,000 ounces, down by 1.4 per cent against its previous guidance of ~ 725,000 ounces.

The Company further mentioned that all projects except Mt Carlton are performing in line or better than plan for the June 2020 quarter, and at present, costs are being well managed, leading towards an unchanged all-in sustaining cost (or AISC) of $900 per ounce, excluding Red Lake, which is anticipated to produce 25,000 ounces of gold for the June 2020 quarter with an AISC between $2,100 to $2,300 per ounce.

Update on Crush Creek JV

The Company commenced drilling at the project in April 2020 to confirm and expand the in-situ mineral inventory at the Delta and BV7 prospects.

Crush Creek and Mt Carlton Along with Other Operations (Heat Map) (Source: Company’s Report)

EVN has received some encouraging results from the Delta prospect, which further reinforce the Company to believe that gold mineralisation at Crush Creek has the potential to provide mine life extensions at Mt Carlton.

Some of the drilling results from the Delta prospect are as below:

• The drill hole identified as DE20DD00001 returned 31.7m (27.5m etw) grading 5.68 g/t of gold from 61m, including 9.0m (8m etw) grading 11.78g/t of gold from 63m.
• The drill hole identified as DE20DD00018 returned 26.0m (25.8m etw) grading 4.34g/t of gold from 71m, including 5m (4.9m etw) grading 19.24g/t of gold from 73m.
• The drill hole identified as DE20DD00004 returned 4.0m (4.0mm etw) grading 25.89g/t of gold from 144m, including 1.0m (1.0m etw) grading 96.8g/t of gold from 145m.
• The drill hole identified as DE20DD00009 returned 4.0m (4.0mm etw) grading 25.89g/t of gold from 144m.

At present, two diamond rigs are present on-site at the Crush Creek JV, and an RC rig is scheduled for September 2020, and the Company is transitioning the confirmatory resource drilling into step-out drilling to expand the resource footprint beyond targets.

EVN Market Reaction

The stock of the Company is trading under pressure and is currently way below its recent high of $6.32 (intraday high on 2 June 2020). EVN made a low of $5.11 during the trading session on 18 June 2020, marking a decline of ~ 19.14 per cent; however, managed to close on a positive zone at $5.30.

Post the announcement, the stock came under further pressure and witnessed a gap down opening of 1.13 per cent during the trading session on 19 July 2020 and is presently at $5.220 (02:33 PM AEST), down by 1.50 per cent against its previous close on ASX.