Gold and copper miner eyes 5% rise in labor costs as profits fall

Jake Klein, executive chairman of Evolution Mining. Louie Douvis

In the six months to December 31, Evolution produced 318,766 ounces of gold at an all-in sustaining cost (AISC) of $1,381 per ounce – well below the current price north of $2,500. ounce, when Russia could invade Ukraine and inflation is rising.

Still, the miner’s profit margin fell to 44% and analysts said the market was pricing in the continued decline in its remaining reserves.

Evolution maintained full-year guidance including 670-725 ounces of gold at an AISC of $1135-$1195, although it became the latest miner to reveal higher costs and report new 5% increase in labor costs next year.

Mr. Klein acknowledged the “headwinds of COVID-19 and cost inflation”, but noted that they were “well and truly outweighed by the very strong tailwinds” that are driving up gold prices and copper.

He also welcomed confirmation this week from Western Australian Premier Mark McGowan that a new date for the reopening of state borders would be unveiled this month. Although it is “difficult to predict” what further cases of COVID-19 will do to his Mungari operations near Kalgoorlie, Mr Klein said he has learned from experiences at Red Lake and Cowal in Canada and in New South Wales, respectively, which saw around 15 per cent absenteeism in the December quarter.

“At this point, we are confident that we have done our best to put plans in place that will mitigate the impacts,” he said.

For the six-month period, Evolution’s net income fell 60% from the prior corresponding period to $90.8 million, while underlying net income fell 57% to $100.1 million . A fully franked interim dividend of 3¢ per share was declared and Evolution’s stock price had gained 2% to $4.02 shortly before the close of trading.

“We consider the financial result to be broadly in line with market expectations but with a higher dividend,” Barrenjoey analyst Daniel Morgan said.

Along with higher costs and lower gold volumes, Evolution’s results were clouded by a busy period of mergers and acquisitions, including the Kundana assets in WA of Northern Star Resources, which also reported this month a cost increase, and a $1 billion takeover of Ernest Henry’s copper-gold operation in Queensland from Glencore.

Mr. Klein further indicated Mr.&A was unlikely, saying “we understand the need to deliver now” after recent strategic “bilateral” agreements relating to its existing assets “the geology of which we believe in”.

“We believe we have a very high quality portfolio with plenty of opportunities for organic growth, but also recognize at the same time that Red Lake has not delivered as we expected over the past six months and delivery will be the key to achieving shareholder recognition and value,” he said.

The company also said Wednesday its annual gold resources rose 12% to 29.6 million ounces as of Dec. 31 and its ore reserves rose 5% to 10.3 million ounces, net of mine depletion.

Copper resources increased by 63% to 1.44 million, while ore reserves increased by 27% to 640,000 tonnes.

“There is excellent potential to expand the mineral resources and ore reserves at Ernest Henry and a pre-feasibility study is underway,” Evolution said.