Monsters of Rock: Goldman stays the course on miner Evolution despite tough result
It may have suffered a reasonably sized sell off yesterday on big drop in full year profit and dividend, but one of the world’s biggest investment banks is keeping the faith with gold producer Evolution Mining (ASX:EVN).
Goldman Sachs says it remains a buy after this week’s full year results.
EVN paid out 2c a share, equivalent to $36.7m, after turning over $163.5 million in statutory net profit (underlying $205m) in FY23.
That came off the back of a tough operational year, but Goldman’s Hugo Nicolaci, Paul Young and Elise Bailey expect returns could improve as it ramps up from around 650,000oz at $1450/oz to 770,000oz in FY24 at costs of $1370/oz.
Goldman, an eternal copper bull, sees costs at $1240/oz on a higher projected copper price, with Evolution generating big all in sustaining cost credits from its Ernest Henry mine in Queensland.
The investment bank has decreased its 12 month price target on the bullion producer from $3.80 to $3.70 — around 10% higher than its current trading price of $3.36 — but continues to view EVN as a buy.
They think it continues to remain attractive on free cash flow yield against gold peers.
“On our LT gold price of US$1,700/oz EVN is trading on ~1.05x NAV, or pricing ~US$1,770/oz gold, and near-term FCF yields of c. 10-15% in FY24/25E remain attractive vs. peers and support upside to the outlook for capital returns,” GS’ Australian analysts say.
They also like EVN’s copper exposure and organic growth options. It is currently expanding its Mungari plant in WA, and has increased the Ernest Henry resource four times since acquiring Glencore’s stake in the copper and gold mine 18 months ago.
“Broadly steady cost and margin performance across the portfolio, further supported by the Ernest Henry copper credit net EVN the strongest margins vs. the peer set, also making the business more defensive in periods of softer gold pricing,” Nicolaci et. al. said.
“With growth options across the portfolio, we see EVN’s growth outlook as more diversified and lower risk than some peers, where despite factoring in capex overruns on all projects vs. recent company guidance we continue to see PT upside.”
Hearing one of China’s largest developers could go belly-up was hardly the news Australian miners wanted to wake up to.
Evergrande has filed for bankruptcy protection in the United States, two years after its debt crisis spurred panic across financial markets.
It did little to harm enthusiasm for iron ore, with Singapore prices up 0.8% to US$106.50/t.
Meanwhile lithium target Azure Minerals (ASX:AZS), which turned down a $2.31 per share bid from major shareholder SQM to preserve its 60% hold over the world class Andover lithium discovery in WA, rose 3.01% to close at a new five year high of $2.74, valuing the explorer at $1.07 billion.