Evolution Mining divests Mt Carlton for up to US$65M

Australia’s Evolution Mining (ASX: EVN) is selling its Mt. Carlton gold mine in Queensland to Navarre Minerals (ASX: NML) in a deal worth up to A$90 million (US$65 million).

The gold mine, 150 km south of Townsville, was Evolution’s first development project, and was commissioned in 2013. Since then it has generated an average return of 19% a year, the company says.

The mine represents about 1.5% of Evolution’s gold resources and 1.7% of its reserves and was expected to produce between 45,000 and 50,000 oz. gold in the current financial year at all-in-sustaining costs of A$1,650 to A$1,700 (US$1,196.79 to US$1,233.06) per ounce.

The mine produced 59,000 oz. in the 2020 fiscal year.

Evolution says the divestiture, which includes its Crush Creek joint-venture exploration project about 30 km southeast of Mt. Carlton, will lower the company’s consolidated AISCs by A$40 (US$29.01) per oz. to A$1,180 to A$1,240 (US$855.9 to US$899.4) per oz., and will cut its fiscal 2022 production to 670,000 to 725,000 oz. per year.

The sale is in line with Evolution’s growth strategy, says the company’s executive chairman, Jake Klein.

“With the company focused on delivery of growth projects at the cornerstone assets in the portfolio, we believe now is the time to hand Mt. Carlton over to an emerging gold producer who can focus on extending the operation’s mine life,” Klein stated in a news release. “The exposure we have retained will enable Evolution shareholders to benefit from the future success of the operation.”

Of the A$90 million, A$40 million (US$29 million) is made up of a mixture of equity and cash. Evolution will participate in Navarre’s equity raise up to a maximum shareholding of 19.9% (for about A$20 million), with the final holding determined after the equity raise.

Up to A$25 million (US$18 million) is contingent on cumulative gold production milestones from Crush Creek, with A$5 million (US$3.6 million) payable upon achievement of 50,000 oz.; another A$5 million upon achievement of 100,000 oz.; and A$15 million upon achievement of 175,000 ounces.

In addition, up to A$25 million is payable in the form of a 5% royalty linked to the gold price, where the average spot price is higher than A$2,250 (US$1,632) per oz. in any given quarter. The royalty is payable on production from both Mt. Carlton and Crush Creek from July 1 2023 for a period of up to 15 years.

The transaction is expected to close in the December 2021 quarter.

Evolution also provided consolidated guidance for the fiscal years 2023 and 2024.

It plans to produce 775,000 to 830,000 oz. gold in fiscal 2023 at AISCs of A$1,085 to A$1,145 (US$787 to U$830.50) per oz. and 855,000 to 915,000 oz. gold in fiscal 2024 at AISCs of A$1,130 to A$1,190 (US$820 to US$863) per ounce.

Commenting on the divestiture, Brian Quast of BMO Capital Markets says the move is consistent with Evolution’s strategy.

“Overall, we view the transaction as a positive continuation of EVN’s efforts to reposition the portfolio and its financing to invest in the next chapter of the company’s disciplined organic and M&A investments,” the analyst wrote in a research note to clients. “The modest size of Mt Carlton and the consideration being roughly equal to our prior asset NAV [net asset value] estimate making the transaction value neutral.”