Ground Breakers: Evolution opens gold reporting season with a whimper, Yancoal shows coal does pay

Evolution sees a second consecutive drop in underlying profit as costs and Canadian issues hit results
Yancoal reports record half-year, announces nearly $700 million interim dividend on runaway coal prices

Evolution Mining (ASX:EVN) boss Jake Klein spent years trumpeting a value over volume mantra, insisting that bigger does not mean better when it comes to gold mining.

Whether the Sydney-based gold miner, the first of Australia’s big three to report this earnings season, has taken its own mantra to heart is unclear.

Since making its move into Canada a couple years ago with the acquisition of the Red Lake complex in Ontario, Evolution has been on a downward course.

In 2021 its underlying NPAT fell from $405.4m a year earlier to $354.3m, its final dividend falling from 9c to 5c (though full year dividends were a record).

In 2022 those financials have retreated again, with underlying NPAT of $274.7m and a final dividend of 3c a share, EBITDA down from $914.2m a year earlier to $898.8m and operating mine cash flow lower from $937.3m to $893.3m.

Statutory NPAT was $323.3m, down from a record $345.3m in 2021.

That Evolution’s results were down from the year before was not a major surprise, given it had recently deferred a plant expansion decision at its Mungari operation in WA because of increased costs and a labour shortage, and dialled back the timeline for its production growth.

After producing 640,275oz at all in sustaining costs of $1259/oz (a figure supported by higher copper credits after its well-received $1b buyout of Glencore’s share of the Ernest Henry copper mine), EVN plans to increase output to 720,000oz in FY23 and 800,000oz in FY24.

‘Transformational’

But boss Jake Klein is upbeat on the growth pipeline Evolution has in its portfolio, saying the previous 12 months which included the $400m purchase of Northern Star’s (ASX:NST) Kundana mines near EVN’s Mungari operations, had been “transformational”.

“These last 12 months have both been extremely challenging, but truly transformational for Evolution, as we have achieved a genuine step change in the quality of our portfolio,” he said on a conference call today.

“With significant external and internal challenges, we do acknowledge that we have fallen short on operational delivery over these past 12 months.

“Encouragingly, whilst early days, we have started the year well, with our portfolio performing to plan and we are determined to sustain this throughout this year.”

While Evolution tends to use conservative gold price models in its life of mine plans, Klein has grown increasingly bullish on the outlook for the precious metal in recent months, telling reporters at Diggers and Dealers this month that it could rise to between US$2000-3000/oz as central banks struggle to keep a lid on inflation.

At the same time Klein said he did not regret the company’s move into North America. He noted today the Red Lake field would be the fourth largest in Australia if it were located on this side of the equator.

Evolution CFO Laurie Conway said the company has $930m in liquidity to support its growth projects, including the expansion of the flagship Cowal mine in New South Wales and development of the Upper Campbell orebody in Canada. EVN also says its carbon emissions have fallen 7% on its 2020 baseline in FY22, flagging a June 2023 deadline for a feasibility study on a new pumped hydro development at its Mt Rawdon mine.

Evolution Mining (ASX:EVN) share price today:

Yancoal shows cr-, er sorry, coal, does pay

Fossil fuel producers may suffer reputational hits like no other business, but energy shortages have shown how much markets seem to want them around right now.

A lack of investment in energy supply and Russia’s war in Ukraine have run thermal coal prices to all time highs, with Newcastle coal tonnes still fetching upwards of US$400 today.

Australia’s largest pure play coal producer Yancoal (ASX:YAL), where minority shareholders saw off a ‘lowball’ bid from its Chinese parent company a couple months back, thinks supply side constraints and demand from shortages and energy market disruption will continue into 2023.

It lays out a positive path for the full year, with its half-year results today revealing Yancoal’s revenue climbed 234% or $3 billion to a record $4.8b in the first half of 2022.

That was driven by average realised coal prices of $314/t and despite hits to ROM coal production from wet weather that saw production slide from 29.3Mt this time last year to 25.8Mt in H122, with costs rising to $83/t and expected to go higher to $84-89/t for the full year.

Yancoal saw operating EBITDA climb from $406m in H121 to $3.153b, with profit after tax up 1447% to $1.74 billion.

Such is the profitability of the sector now that the coal miner’s half-year dividend of 52.71c a share, or $696m, takes its payments back to shareholders over the last two reporting periods to more than $1.6 billion, more than Evolution has paid in its entire history.

“Yancoal delivered a record six-month financial performance. The revenue is close to the $5.4bn delivered for the full year in 2021, which was a record year. The revenue profile has driven a rapid transformation of the company’s financial position. Over the past 12 months Yancoal has taken its net debt position from $3.4 billion to effectively zero,” CEO David Moult said.

“The remarkable turnaround in the company’s financial position is driven by the coal price but couldn’t be achieved without the unwavering focus on the day-to-day operations by all the people across the seven mines.

“The positive outlook for the coal prices, and the record 1H Result, puts Yancoal on track for another full-year record in 2022.”

Yancoal is flagging further struggles for Australian coal supplies, saying excess water is still pooling in its NSW mines after wet weather this year.

“It will take the rest of this year and into next year to get all the mines back to normal production output – assuming the rain and labour shortages, including COVID-19 disruptions subside,” the company said.