Evolution Mining sends chill across the gold sector
Evolution Mining sent a chill across the gold sector on Monday after it flagged a big production downgrade and shelved a multi-million dollar expansion of the mill at its Mungari operations on what it called an unsustainable WA labour market.
Shares in the Jake Klein-led miner tumbled nearly 22 per cent on news of lower output and higher costs out to 2024.
And investors took a scythe to other gold producers including Northern Star Resources (down 12 per cent), Newcrest Mining (off 6 per cent) and Regis Resources (down 4 per cent), fearing further downgrades and underperformance across the sector.
Evolution previously said it would look to expand the mill at Mungari from a 2 million tonne per annum capacity to 4.2Mtpa after it acquired Northern Star’s Kundana operations west of Kalgoorlie in July last year.
But Mr Klein said on Monday while the company would complete a study into the expansion, it had decided to defer the project and instead focus on optimising the existing operation.
“Labour market conditions in WA have been challenging and disruptive at Mungari,” he said.
“It does feel like we are back to the boom-time conditions when commodity prices last peaked in 2011. In our view, these conditions are not sustainable.”
The shelving of the plant expansion means Evolution will produce about 127,000 ounces a year at Mungari over the next two years, down from its previously stated goal of 200,000ozpa.
But Mr Klein said the move would mitigate the risks of undertaking a major construction project in an overheated WA labour market and cost environment.
Evolution blamed wet weather at its Cowal mine in NSW and COVID absenteeism at Mungari for a 10,000oz reduction in its 2022 group production guidance to 640,000oz.
The company said since the WA border opened in March, more than 30 per cent of its 500-strong workforce at Mungari had been absent for at least 7 days because of COVID.
Evolution joined copper miner OZ Minerals, which on Monday also downgraded its output guidance by 13 per cent citing COVID absenteeism and bad weather.
Evolution’s latest downgrade comes after it lowered its original 670,000oz guidance to 650,000oz in April.
Full-year cost guidance also rose from a range of $1135-$1195 per ounce to about $1250/oz.
But investors were even more rattled by a reduction in 2023 guidance from 830,000oz to 720,000oz and a lowering of the company’s 2024 outlook from 915,000oz to 800,000oz.
Evolution said the revised production figures still represented 25 per cent growth in output over the next two years.
The company also forecast full-year costs of about $1240/oz would continue for 2023 and 2024 because of industry-wide cost pressures and lower production at its Red Lake mine in Canada.
The downgrades follow other disappointing updates from gold miners recently including St Barbara, Ramelius Resources, Dacian Gold and Wiluna Mining.
RBC Capital Markets analyst Alex Barkley said the revised outlook was a significant negative for Evolution’s share price.
“We rate Evolution as ‘underperform’,” he said.
“Among large cap golds, we continue to favour Northern Star Resources, which in our view has a superior operational track record.”
Evolution shares closed down 74¢, or 21.89 per cent, at $2.64 after touching a four-year low of $2.63.
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