Monsters of Rock: EVN in a race to meet ambitious gold targets but with prices where they are does it even matter?

Evolution continues to believe it can meet an ambitious gold target despite needing to produce at a near million ounce run rate in the June quarter
A 15% lift in ounces to 185,252oz at costs of $1464/oz fuelled a 7.5% run up the ASX boards today for EVN
Lynas up close to 6% as Gina Rinehart revealed as substantial shareholder

Evolution Mining (ASX:EVN) is calling on investors to believe it can pull off an unlikely run home, the equivalent of a perfect world record speed run on Super Mario 64 to hit an ambitious FY24 production target.

But any concerns about another guidance miss for the ASX gold giant could be forgiven if prices remain at record levels, with gold and copper bids likely to fuel big cash flows in the June quarter.

EVN shares rose over 7% today after it upped gold production 15% to 185,252oz at all in sustaining costs (down 15%) of $1464/oz.

Against most conventional logic, it still says it can hit the lower end of its FY24 target range at 749,000oz and costs in of $1410/oz.

That would require a runrate of nearly 1Mozpa in the three months to June 30, or ~244,000oz, something the $8b company has never managed.

Copper production on the other hand from the Ernest Henry and Northparkes mines is tracking at the upper end of its guidance range at 65,000t.

But gold and copper prices which have lifted substantially since the end of March could make a guidance miss largely irrelevant. EVN delivered a 7.5% lift in cash flow to $85m in the March term.

Prices have surged since then for both its primary commodities.

“The momentum in the cash build continued from the December quarter, with group cashflow up 7.5% to $85 million at an average price that was $545 per ounce and $1,350 per tonne below the current spot gold and copper prices,” EVN MD Lawrie Conway said on a conference call today.

“With regards to our copper revenue, the key thing to note about the segments that went in late March will mostly be settled using the average copper price in April, which provides further upside to our cash flow.

“The plan higher production in the June quarter matched with the current high metal prices will allow us to materially increase our cash flow and further reduce our gearing from the current 28%, which is down nearly 5% from the start of the financial year.”

Conway said 95% of EVN’s production is unhedged over the next two years.

How to meet guidance?

Jarden analyst Jon Bishop queried the decision to maintain guidance on the call, which came after big production disappointments last year at the Red Lake project in Canada, saying ‘arithmetically’ he could only make out 215,000oz for the June quarter on the information provided.

Conway said Evolution was planning big uplifts in production at Mungari in WA and Red Lake, along with an additional 10,000oz at Cowal which like Mungari would deliver material restricted by wet weather in the March quarter.

Evolution is also touting the success of exploration campaigns that have unearthed material close to mining zones at its Ernest Henry and Mungari projects.

The Mungari discovery includes grades of up to 420g/t in the Genesis orebody at the Kundana mining complex. While narrow, they bear resemblance to the rich quartz veins being mined in the adjacent footwall of the Genesis lode.

“The drilling results released today underscore our belief in the potential for future Mineral Resource growth in
areas adjacent to existing and planned infrastructure at Ernest Henry and Kundana,” exploration boss Glen Masterman said.

“At Ernest Henry, we have demonstrated mineralisation is continuous from the main orebody, through the Ernie
Junior horizon, and now up to 300m north of the current FS study footprint.

“At Kundana, drilling confirms extensions of the Genesis vein along strike towards the previously mined Barkers ore body and at depth beyond boundaries of the existing Mineral Resource.”

Gold, Lynas the standout performers

Evolution was joined by a bevy of gold miners on the winners’ list as bullion lifted US$25/oz on the LBMA overnight.

Another major winner was Lynas Rare Earths (ASX:LYC), which climbed over 6% after it was revealed after-market on Tuesday that Gina Rinehart’s Hancock Prospecting had spent ~$49m to tip Australia’s richest person’s stake in the rare earths miner beyond the substantial shareholder threshold to 5.82%.

After taking a similar stake in NYSE listed MP Materials recently, the only other producer of scale outside China, lips are buzzing that the iron ore magnate could be looking to broker or run a long-mooted consolidation play of the west’s largest rare earths producers.

Rinehart is no stranger to splurging on minerals where she appears to be a neophyte, having emerged as a major player in the contest for lithium supremacy in 2023 with big stakes in a host of ASX developers and explorers.

It culminated in a joint bid with SQM for $1.7 billion target Azure Minerals (ASX:AZS), currently held up only by FIRB approval for Chilean owned and Chinese supported SQM.

Her investments in rare earths also include stakes in Arafura (ASX:ARU) and recently listed ionic clay hopeful Brazilian Rare Earths (ASX:BRE).

The materials sector was down 0.38% with the ASX 300 Metals and Mining Index down 0.2% but All Ords Gold up 2.3%.