Evolution Mining (EVN)

Fat Prophets

Tuesday 3rd June 2014

Fat Prophets

Evolution Mining (EVN)

What’s new

Evolution Mining recently unveiled a solid third quarter progress report, with gold production for the three months ended March 2014 up an impressive 20.4 per cent year on year to 101,408 ounces.

The successful ramp-up of Mt Carlton was the main driver behind the result, as the mine continues to produce well ahead of expectations. Mt Rowden also reported a lift in gold production, as the site benefited from a significant increase in ore throughput and better recoveries, partly offset by lower processing grade. On the downside, gold production from the Pajingo mine was a drag, suffering a fall of 33.2 per cent year on year due to restricted access and mine scheduling issues, while the Cracow and Edna May mines also reported lower production outcome for the quarter.

Encouragingly, amidst the current challenging gold price environment, Evolution Mining continues to focus on containing operational costs. All-in sustaining costs continued to trend lower year-on-year in the March quarter, falling a further 24.4 per cent compared to a year ago, to A$1,079 per ounce.

Outlook

The solid third quarter result, especially from the Mt Carlton mine, has set Evolution Mining up to easily reach management’s full fiscal 2014 gold production guidance of 400,000-450,000 ounces. Indeed, for the nine months to March 2014, the company has already produced 315,804 ounces of gold and we see further 100,000-plus ounces of production in the current June quarter as easily achievable.

More importantly, we are comforted by the positive trend on the cost front, with management reaffirming all-in sustaining costs guidance for fiscal 2014 at A$1,080 to A$1,130 per ounce, down from A$1,178 per ounce in fiscal 2013.

On the exploration front, the company is building a sizeable bank of both 3 and 4 dimensional (3D & 4D) data across its tenements. The 3D and 4D data will be used to plan a major drill program in 2015.

Price

Despite the volatility in the gold price, shares in Evolution Mining have held up very well, actually rising just under 5 per cent over the past year. In fact, over the past six months, the gold miner’s stock price has gained 33 per cent, as it bounced back strongly from the gold price-induced slump in the latter part of 2013.

Worth Buying?

Evolution Mining has a diversified asset base, comprising of five good producing sites. As capital expenditures tail away, we expect the company’s free cash flow to improve significantly over the months ahead. Furthermore, with latent exploration potential across all its sites and additional capacity upside, the stock’s 8 times forward earnings multiple at the current price continues to look attractive.

Consequently, we believe Evolution Mining is worth buying at around the current level.

Greg Smith is the Head of Research at Fat Prophets.

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