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Mining
Dividends are beginning to flow for mining investors, with gold producer Evolution Mining (ASX:EVN), coal producer Yancoal (ASX:YAL) and mining services stock NRW Holdings (ASX:NWH) sticking their hands into the pockets as financial reporting season kicks off in earnest.
Australia’s third largest gold miner, our second biggest if Newcrest (ASX:NCM) shareholders approve an all-scrip sale to US gold giant Newmont later this year, Evolution will return 2c a share or $36.7m to shareholders of the Ernest Henry gold mine owner.
Coming off the back of a $163.5m net profit, down by almost half on last year’s $323.3m haul, it marks $1.13b of returns over the past 10 years for the Australian goldie.
At 2c per share EVN’s final dividend was 33% lower than the 3c per share final dividend in FY22, off the back of a tough operational year which saw the miner deliver 651,155oz at an all-in sustaining cost of $1450/oz.
EVN expects to see output rise 18% to 770,000oz in FY24 at costs of $1370/oz, after seeing earnings per share halve in 2023. While it achieved record production rates at the Cowal gold mine in New South Wales of 276,314oz at $1138/oz, flooding at the Ernest Henry mine in Queensland, labour shortages at Mungari in WA and continued challenges at the Red Lake mine in Canada hampered its overall performance.
“The FY23 results were impacted by a number of external events partially offset by higher metal prices,” EVN MD Lawrie Conway said.
“In FY24, planned lower capital expenditure profile, anticipated lower all-in sustaining cost and higher production levels will see us move to stronger cash generation.
“This is underpinned by the move into commercial production of our recent projects at Cowal and Red Lake, and the resumption of normal operations at Ernest Henry. We remain focused on safe, reliable operations that deliver margins over ounces and improved shareholder returns.”
Evolution also announced a mineral resource upgrade at Ernest Henry, its fourth since taking full ownership of the mine 18 months ago from Glencore, increasing its inventory to 101.5Mt at 1.25% copper and 0.73g/t gold for 1.3Mt copper and 2.4Moz of the precious metal.
Yancoal shares surged almost 6% after it announced a 37c per share fully franked interim dividend, delivering $489 million for shareholders of the Chinese controlled coal producer.
It came despite lower coal prices, down 11% year on year, which saw revenue fall from $4.8b in the first half of 2022 to $4b in the first half of 2023 at average prices of $278/t.
Yancoal delivered 26Mt of run of mine coal production on a 100% basis at operating cash costs of $109/t, with higher production through the second half expected to see costs come down.
It still has $1.1 billion in the bank after $1.7b in tax, $924m in dividend and $496m in loan payments.
For 2023, Yancoal expects to deliver 31-36Mt of attributable saleable coal production at $92-102/t alongside $600-750m in attributable capex.
Saleable production rose 44% in the second quarter. And Yancoal’s results show how profitable coal producers remained in the first half despite a big drop in thermal coal prices from over US$400/t to under US$150/t in spot markets on the back of lower demand after a mild European winter.
“At the start of the year, we described our need to rebuild mining inventory to underpin a sustainable return to prior years’ production levels. The plans and equipment are in place, and production is expected to continue improving in the coming months,” Yancoal CEO David Moult said.
“The Group is in a robust financial position, with no external loans, franking credits available and a net cash balance that increases each month. Yancoal directly contributed over $2 billion to the Federal and State Governments in taxes and royalties in the past six months.
“Coal prices have retreated from the elevated levels of last year but remain robust in historical terms.
“Coal markets appear relatively well balanced, with seasonal or temporary supply and demand factors poised to determine short term price trends. In all market conditions Yancoal aims to maximise its margins by balancing volume, costs, coal quality and capital expenditure.”
Yancoal delivered 14.4Mt of saleable coal production on an equity basis in the first half, down 7% on the first half in 2022, with thermal coal sales falling 10% to 12Mt and met coal sales rising from 2.4Mt to 2.9Mt.
While thermal prices were down 14% YoY to $256/t, met coal prices remained strong, down just 3% YoY to $389/t.
Although profits remained strong they were a long way down on 2022 levels owing heavily to production issues and higher operating costs, with profits after tax down $765m to $973m for the first half and operating EBITDA down $1.33b to $1.821b.
Mining contractor NRW says its dividend payout ratio of 71.5% (60.5% on a franked basis) is a record for a financial year, delivering an 8c per share final payment to shareholders.
It took total payments to 16.5c per share, on the back of a 10.2% lift in EBITDA to $288.8m and 11.4% rise in revenue to $2.7b for FY23.
However, the Perth-based mining and civil services player copped a 6% hit to its share price as boss Jules Pemberton revealed it had copped a big hit on fixed price contracts, especially at its Primero Group division, an engineering contractor which specialises in lithium projects.
It had also identified reporting errors that would require Primero to restate its 2022 results.
“Unfortunately, as a result of these challenges our margins have been under pressure and in some businesses, notably Primero, the impact of cost escalation and labour availability on fixed price projects has been significant,” Pemberton said.
“We have acted swiftly to address these issues and worked with our clients to reach equitable outcomes.
“We also identified a prior period error in Primero’s revenue recognition that affected the results of two projects that were completed in the 2022 financial year. Correcting this error, which was the overstatement of revenue and margin by $10.3 million, will require Primero to restate its 30 June 2022 financial statements.
“Whilst not material to the Group’s 2022 published results, as described at note 1.9 in the Financial Statements, the prior period results have been restated in accordance with the applicable accounting standard requirements, and the prior period error corrected through opening retained earnings in the NRW Holdings FY23 financial statements.
“Additional review processes for all significant projects have been implemented at the NRW Group level to ensure that this error will not be repeated. We have also appointed new executive leadership to Primero during the year to ensure the ongoing management and reporting of contracts is consistent with NRW group processes.”
It has been one of the most speculated on mining services deals in recent years and Byrnecut has won out in the bid to deliver the monster underground development at Liontown Resources’ (ASX:LTR) Kathleen Valley mine.
The first underground lithium mine to head into production, the major WA mining contractor has secured a fixed and variable contract valued at around $1 billion over four years for the project, which will support an initial plant capacity of 3 million tonnes of ore per annum.
Kathleen Valley is one of the largest lithium deposits in the world, containing 156Mt of ore at a grade of 1.4% Li2O an 130ppm tantalum pentoxide.
Byrnecut will head in this quarter as mining of the Mt Mann open pit wraps up, with 90km of underground development expected across the life of the contract, 60km in “significant early capitalised development”, in the Mt Mann and Northwest Flats orebodies.
Mt Mann’s open pit will provide an entry point for six future portals to head into the underground at Kathleen Valley, where plans have already been made to ramp up in future to 4Mtpa, with development to start in the December quarter.
Liontown MD Tony Ottaviano said after the contract award that the lithium hopeful remains on track for a mid-2024 start.
“Byrnecut is a Tier-1 underground mining services contractor with a global footprint. Its underground expertise is highly respected and well recognised throughout the mining industry and investment community, underpinned by the people they attract and retain,” Ottaviano said.
“As part of the tender process, I was pleased to learn that around 400 people have worked for Byrnecut for 10 years or more.
“I believe this is evidence of a highly engaged and motivated team, which is vital to operating safely in an underground mining environment.
“Our collaboration with Byrnecut has already delivered value in the form of the updated ‘one mine, two orebodies’ mine plan, which was optimised as an outcome of the tender evaluation process.
“Byrnecut will invest more than A$125 million in new equipment, highlighting their commitment to the successful delivery of underground mining services at Kathleen Valley.
“At around A$1 billion this is the largest contract to be awarded by Liontown and is reflective of operational requirements, external factors and the four-year duration.”
It comes after Bill Beament’s Develop Global (ASX:DVP), a long rumoured suitor for the contract, revealed in its recent quarterly report that it had not taken part in the second round of the tender process.
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