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Fat Prophets’ Hot Stock

Records fall at the halfway mark

Tuesday 7th February 2017

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What’s new?

Evolution Mining continues to move along in top gear, following the release of its second quarter operational report to 31 December 2016. There were two key positives from the report, with gold production in the December quarter having increased 6.9 percent to a record 217,812 ounces, while operating costs came in at a record low. Perhaps not surprisingly, the robust operational performance delivered a further strengthening of the balance sheet.


Record gold production for the December quarter reflected strong performances by the Cowal and Mt Rawdon mines, and the first inclusion of gold from the recently acquired Ernest Henry mine. Dragging on the quarters’ result were the Mt Carlton and Cracow mines. The divestment of the Pajingo mine also removed gold production from the December quarter result.


Silver production as a by-product was significantly higher for the reported quarter, following the reporting of a 50% increase on the same quarter in 2015, to 263,183 ounces. Reporting significantly improved production numbers were the Cowal, Mt Carlton and Mt Rawdon mines, while the Cracow and Edna May mines printed falls. The quarter also benefitted from the inclusion of first silver from the Ernest Henry mine.

For the December quarter, the company produced 3,501 tonnes of by-product copper from its Mt Carlton (376 tonnes) and Ernest Henry (3,125 tonnes) mines.


Costs for the quarter took a good stride forward, with the better production outcome being reflected in the company reporting a record low operating cost. The December quarter brought with it a significant improvement in C1 cash costs of 23% compared to the December quarter 2015, to A$585 an ounce. All-in sustaining costs (AISC) reported a more modest 11.4% improvement on the same result from a year earlier, to A$900 an ounce.


In terms of Evolution Mining’s ongoing hedges, we note that, to partially protect operating revenue and margins, the company has continued to hold a 579,487 ounce position, with an average delivery price of A$1,663 an ounce. With the gold price in Australian Dollars trading around A$1,588 an ounce, the average position is ‘in-the-money.’ We consider the position as prudent in the current pricing environment.



Production guidance for 2017 remained unchanged to be in the range of 800,000 to 860,000 ounces of gold, while AISC guidance for the comparable period is expected to be in the range of A$900 to A$960 an ounce.



With gold production trending at a record high and operating costs trending at a record low, it follows that Evolution Mining’s fundamentals have strengthened, as per the incremental improvements in the balance sheet. Encouragingly for investors, the stock’s positive fundamentals are being complemented by what is an equally attractive technical set-up, as evidenced by the recent formation of a 'bullish doji', which is sign of positive sentiment.


Worth buying?

A string of recent acquisitions has, we believe, improved Evolution Mining’s existing growth profile and are having a positive impact on the company’s operations and financials. We believe the company has a suite of quality gold assets with brownfield expansion capacity, and also a strong enough balance sheet to act as a springboard to deliver value to its shareholders over the next several years. 


David Lennox is a senior analyst at investment research and funds management house Fat Prophets.  To receive a recent Fat Prophets Report, CLICK HERE 




Disclosure: Evolution Mining is held within the Fat Prophets Concentrated Australian Share, Mining & Resources and Small & Mid Cap Portfolios.

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