Monsters of Rock: Evolution sets positive tone for gold financials

Evolution Mining storms up the charts with 135% lift in underlying profit
Analysts remain sceptical on its performance and capex profile, highlighting the role gold and copper prices played in the strong result
Mount Gibson Iron and Seven Group Holdings also higher in the minerverse

$8 billion gold miner Evolution Mining (ASX:EVN) ran almost 9% in morning trade, stunning with a 135% lift in underlying profit to $482 million, and 67% rise in earnings to over $1.5bn as it juiced up its dividend on strong gold and copper prices.

The Cowal gold mine owner also lifted its final dividend 2.5x to 5c a share, taking its total payout to 6c for FY24.

While EVN’s troublesome Red Lake mine in Canada saw it miss FY24 guidance, it still lifted gold production 10% in the year to June 30 to 716,700oz and pumped up copper production 43% to 67,862t after acquiring the Northparkes mine in New South Wales.

Realised gold prices pumped 23% to $3190/oz, while copper prices rose 9% to $13,657/t, with all-in sustaining costs up 2% to $1477/oz.

The final dividend, EVN’s 23rd in a row, will see $99.3m returned to the pockets of EVN shareholders, whose response to the news bounded beyond the excitement of analysts, who felt the dividend undershot expectations.

The Jake Klein-led goldie has flagged continued growth in FY25, posting guidance of 710,000-780,000oz gold and 70,000-80,000t copper at $1475-1575/oz, with $215-270m of sustaining capex, $150-200m of mine development and $365-430m of major capital expected to be outlaid.

While the dividend came in below the 7.3c consensus estimate, statutory NPAT ($422m) was 19% higher, while underlying NPAT was 15% better.

Result decent, but analysts cautious on guidance

Given the persistent issues EVN has had with guidance, notably the will they, won’t they game its played at Red Lake over the past few years, analysts remain cautious on the risks ahead.

“No major shocks in what was left of FY25 guidance. Gold production and capex guidance were broadly in-line. EVN had previously given some site-based commentary on both,” RBC Capital’s Alex Barkley said.

“FY25 AISC guidance was 8% above RBCe and 4% above consensus. This minor difference is partly explained by EVN’s ~10% lower AUD copper price forecast.

“FY24 total dividend of 7.0cps was slightly below expectations (RBCe 7.5cps, cons 7.3cps). Some one-off accounting contributed to P&L beats, and underlying FCF was slightly ahead, albeit cash was pre-flagged at Q4.

“Overall, a fairly neutral outcome for EVN. However, avoiding more negative FY25 guidance may be seen as a positive to some in the market.”

Jarden analysts led by Jon Bishop, who has a $3.19 price target on EVN, said higher commodity prices had a big impact.

While that may sprinkle some glitter on the EVN result, it certainly bodes well for other unhedged gold miners due to report later this month.

“Impact of rising commodity prices is stark when considering FY’24 production was 10% higher than the pcp and yet EBITDA and NPAT were up 158% and 135% (underlying basis) like-for-like despite a 31% rise in operating costs,” Bishop and co. said.

“Thus, on the one hand, we continue to respect the leverage EVN’s business affords to rising commodity prices – noting applying spot gold (US$2,430/oz) and copper (US$4/lb) LT implies a $4.90/sh valuation – however, we cannot ignore the steady opex creep and the material capex investment required over the next five years on our forecasts.

“This last point is further acknowledged in the context of the pending granularity for EH LOM extension, Northparkes E22 development but also the sustaining capex required for all of the assets, given this continues to surprise the market to the downside.

“Nevertheless (and restating that the current Q will likely be weak vs the JQ due to the major shuts at Cowal and Northparkes), the market will likely enter FY’25 with renewed optimism given commodity price robustness and only $50m due under the debt amortisation profile.”

Talking to analysts and media this morning, Klein said EVN was “up to the challenge” of delivering on FY25 guidance, acknowledging it will be closely scrutinised.

Copper, iron ore in focus

A drop in iron ore prices led by rising port inventories has drawn the attention of the China Mineral Resources Group, the peak body for iron ore importers.

It blamed speculation for decisions to stockpile ore, which has pushed prices below US$100/t. But the macro picture is also to blame, after China’s steel purchasing managers’ index fell from 47.8 in June to a paltry 42.5 in July.

Anything below 50 is contractionary.

Meanwhile, copper traders are on watch after BHP (ASX:BHP) and Rio Tinto (ASX:RIO) saw workers down tools in a pay dispute at Escondida in Chile, the world’s largest copper mine.

The last and longest strike lasted 43 days and coincided with a run-up in copper prices through mid-2017, according to graphs Benchmark Mineral Intelligence copper analyst Piotr Ortonowski posted to LinkedIn.

In that dispute, Escondida suffered around 143,000t of lost output. The mine is expected to produce 1.08-1.18Mt of the red metal in FY25, according to BHP guidance, around 5% of the world’s mined copper tonnes.

Copper prices were down almost 1% overnight to US$8959/t.

Led by EVN, copper miners were largely in the green without any outsized gains.

The big iron ore miners were in the red, though Mount Gibson Iron (ASX:MGX) bucked the trend after finalising a $27.3m insurance payout for business interruption linked to a fire at its Koolan Island mine in WA in 2022.

Seven Group Holdings (ASX:SVW) meanwhile rose strongly on results from the Westrac business, the Caterpillar supplier to the Aussie mining industry.

Westrac powered a 30% lift in NPAT for the conglomerate to $850m, offsetting weak numbers and impairments at under fire Seven West Media (ASX:SWM) and Beach Energy (ASX:BPT).

The broader materials sector tanked as BHP, the mining market’s biggest player recorded a near 2.8% loss. And how’s this for a late breaking piece of news: The cashed up and acquisitive Perseus Mining (ASX:PRU) has taken a near 14% stake in Guinea-focused Predictive Discovery (ASX:PDI).

PDI owns Bankan in West Africa which, with a reserve of over 3Moz, has the potential to be one of the top 20 gold mines in that fertile part of the continent.

Only last week, Canaccord Genuity’s Paul Howard put PDI on our radar as a top pick with big M&A potential.

READ: Diggers and Dealers: Miners and analysts see digs and deals in gold’s bright future

By our maths, Perseus’ direct stake in PDI clocks in at a touch over $60m, a not insignificant investment after spending $270m on Tanzania’s OreCorp earlier this year. Jeff Quartermaine’s 500,000ozpa gold miner also holds 3.45% of PDI’s register in cash settled equity swaps.