Evolution Mining (ASX:EVN) downgrades production guidance, shares tumble

Highlights

• Evolution Mining shares have dropped more than 20% in the opening hour today.
• The gold miner has shared its FY22 operational update and FY23 guidance alongside an outlook for FY24.
• The company has downgraded its guidance for gold production for this year as well as for upcoming ones, courtesy pandemic induced disturbances and setbacks on a Canadian project.

Gold and copper miner, Evolution Mining Limited (ASX:EVN) has released its FY22 operations update. It has also shared a guidance note for FY23 guidance and its outlook for FY24 today (27 June). Evolution’s five operational wholly-owned mines include – Cowal in NSW, Ernest Henry and Mt Rawdon in Queensland, Mungari in WA and Red Lake in Ontario, Canada. In FY22, Evolution expects a production jump in group results along with an increase in its All-in Sustaining Costs.

EVN share price performance

Evolution Mining Limited’ share price has slipped over 20% after the ASX update. EVN shares are trading at AU$2.690 by 10:45 AM AEST. In last five trade sessions EVN share price has lost more than 24%.

How is Evolution placed for FY22?

• In terms of Production - In June 2022 quarter EVN anticipates production to be 15% more than previous quarter. The transformation at Red Lake is expected to push production by 15% over March 22 quarter. Production at Cowal and Mungari were impacted by wet weather in May and COVID related staff absenteeism, respectively. FY22 gold production is anticipated around 640,000 ounces.
• In terms of Costs - FY22 All-in Sustaining Cost (AISC) to be AU$1,250/oz. The final reported AISC to largely depend on the closing copper price for June 22, used to revalue unsettled concentrate shipments from Ernest Henry. On average, there are four months of production subject to revaluation. At the current copper price, this adjustment will negatively impact FY22 AISC and the impact will result in group AISC moving over guidance range of AU$1,135 – AU$1,195/oz. Sustaining and major capital are both expected to be at the lower end of their guidance.
• Notably, at present commodity prices including copper and gold have been trading low due to an expected slowdown in demand.
• Moving to evolution’s resources and assets-Ernest Henry, on track to deliver over AU$400 million of mine cash flow for FY22. Pre-Feasibility Study (PFS) remains on schedule for completion by December 22. Drilling results are expected to extend the copper-gold footprint across the PFS area and below. The balance sheet is strong with around AU$900 million of liquidity including AU$540 million of cash expected at the end of FY22.

FY23 Guidance and FY24 Group Outlook

• Production forecasts - In FY23, group production is anticipated to increase by 12% on current year. Outlook for FY24 forecasts a further 11% increase on current year numbers. In two years, Evolution thus expects a total increase of 25%. However, these production levels are lower than its previous plans mainly due to the Red Lake transformation delay by a year.
• Cost predictions - FY23 AISC guidance and FY24 AISC outlook are forecasted to be in line with current year. These will be higher than previously outlined costs as the entire industry witnesses cost pressures. Another reason pushing costs higher will be the lower production at Red Lake. However, Evolution still claims to be one of the lowest cost global gold producers.
• Sustaining capital guidance- is estimated around AU$190 to 240 million in FY23 and remains same in FY24. The outlook is slightly higher than what was previously outlined due to fleet replacement at Ernest Henry for a mine life extension.
• Majority of capital will be used for development of Cowal underground mine, transformation of Red Lake and progressing studies at Cowal Open Pits, Ernest Henry Extension, alongside plant expansion at Mungari. The guidance and outlook for costs and capital is also impacted by some delayed or deferred investment in FY22 into FY23, moving capital spend to the bottom end of FY22 guidance.

Management Commentary

As per Jake Klein, Executive Chairman, Evolution Mining:

“Evolution is confident on growing turnaround and potential at Red Lake. Its Cowal underground mine is on budget and schedule. Cash generation and geological upside at Ernest Henry is also outstanding.

During times of increasing costs and a challenging labour market, Evolution has decided to thoroughly assess all planned expenditure with a focus on ensuring to prioritise margins over volume to earn an appropriate return on capital.”

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