When Jake Klein spoke about Evolution Mining at the Northern Miner’s Global Mining Symposium in May, the company’s founder and executive chairman emphasized that his team was “continually looking to upgrade the portfolio” and predicted that “the next ten years are going to be even more exciting” than the previous decade.
It was a bold forecast. After all, the Australian gold miner has grown quickly through a series of “transformational transactions” since its founding in 2011 and already has four wholly owned mines in Australia — Cowal in New South Wales, Mungari in Western Australia, and Mt Rawdon and Mt. Carlton in Queensland, as well as an economic interest in Glencore’s Ernest Henry copper-gold mine, also in Queensland. In the last two years, the Sydney-based company has carved a sizeable footprint in Canada, too, with its US$375 million all-cash acquisition from Newmont of the Red Lake complex in western Ontario’s famous Red Lake district, which closed on April 1, 2020, and more recently, the $343 million acquisition of Battle North Gold and its Bateman gold project, also in Red Lake, which closed on May 20.
But true to his forecast, Klein unveiled another significant acquisition this week, this one in Australia, demonstrating that the mid-tier gold company isn’t hitting the brakes on M&A. On July 22 the company announced it is picking up assets belonging to Northern Star Resources that are situated within eight km of Evolution’s Mungari mine, and which it hopes will turn Mungari into “a cornerstone asset.” Evolution will pay A$400 million ($371 million) in cash for Northern Star’s 100%-owned Kundana operations; its 51% interest in the East Kundana joint-venture; its 71% interest in the West Kundana farm-in joint-venture; and its 100%-owned Carbine project.
“The consolidation of the district is a gamechanger for Evolution and the Eastern Goldfields,” he told me via email. “The tenements are contiguous, and most importantly we now have immediate access to significantly larger volumes of higher grade material and the opportunity to extract material synergies that were not available to either ourselves or Northern Star in the absence of this transaction.”
The company is paying for it with funds from an A$400 million institutional placement fully underwritten by J.P. Morgan Securities Australia (104 million new ordinary shares at A$3.85 per share, a 5.4% discount to the company’s last closing price of A$4.07 per share), and a non-underwritten share purchase plan targeting to raise up to A$50 million. The decision to fund it with equity, the company said, “reflects its continued commitment to prudent balance sheet management” and the company maintains cash and available liquidity of A$815 million.
Evolution expects the deal will be completed in late August.
The transaction gives Evolution a portfolio of underground mines less than 10 km from its mill at Mungari; “provides a pathway” to growing Mungari to a 200,000 oz. gold per year producer; offers operational synergies and cost reduction potential; consolidates a 1,027 sq. km land package making Evolution one of the largest land holders within the Kalgoorlie district; delivers exploration potential; and “more than doubles” Mungari’s resources and reserves to extend mine life.
Evolution says the Kundana assets, which are about 20 km west of Kalgoorlie and 600 km east of Perth, will extend Mungari’s mine life from nine to thirteen years. Mining analysts Reg Spencer and Henry Renshaw of Canaccord Genuity Capital Markets in Australia, say they “suspect that this is conservative given the now consolidated land holding.”
So what exactly is Evolution getting for its money? The 100%-owned Kundana operations consist of the Millennium, Pope John and Moonbeam deposits and underground operating areas “with future underground production planned from additional mining areas” and potential for “mine life extension through near-mine exploration upside.” It will get 51% and become operator of the East Kundana joint-venture with Rand Mining Ltd. and Tribune Resources Ltd. The JV has three primary underground mines — Rubicon, Hornet and Pegasus — collectively known as RHP. And it gets the 100%-owned Carbine project where about four open pits (Paradigm, Ant Hill, Carbine and Phantom) are planned, along with one planned underground operation (Paradigm underground), about 57 km from Kalgoorlie, 43 km northwest of Mungari and about 19 km north of Evolution’s Castle Hill tenements.
As of the end of March, the “acquisition assets” as Evolution calls them have combined resources of 2.44 million oz. grading 4.1 grams gold per tonne in 18.8 million tonnes, including total reserves of 579,000 oz. of gold grading 4 grams gold per tonne in 4.5 million tonnes. In fiscal 2021, Northern Star reported that the Kundana assets produced 120,943 oz. of gold.
Along with the announcement, Evolution has increased its near-term, three-year production outlook to 700,000 to 760,000 oz. gold in fiscal 2022 (an increase in production of 30,000 oz.); 815,000 to 875,000 oz. of gold in fiscal 2023 (up 65,000 oz.); and 940,000 to 1.01 million oz. of gold in fiscal 2024 (up 60,000 oz.). All-in sustaining costs remain unchanged at A$1,220-A$1,280 per oz. in fiscal 2022; A$1,125-A$1,185 per oz. in fiscal 2023; and A$1,170-A$1,230 per oz. in fiscal 2024.
As Klein said in his interview at our Global Mining Symposium when I asked him if he had any advice for people starting out in the industry — taking risks is just part of the job.
“This is an industry where opportunity doesn’t come gift-wrapped,” he said. “You have to go out on a ledge and figure out a way where you’re going to jump off the ledge, whether it’s in your personal career or needing to move into another space. When you’re sitting around a board table and you’re thinking about an acquisition, there are always more reasons not to do something than to do something. … At the end of the day, you have to take risk and this is an industry about geological and financial risk and you need to get comfortable taking them.”
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