Evolution Mining shares nosedive 19% as quarterly results disappoint

Evolution Mining (ASX: EVN) reported a disappointing December quarter report, where gold production and its all-in sustaining cost (AISC) missed market expectations.

The stock opened 9.1% lower as the market opened and down 18.9% to $3.04 in early trade or the lowest level since March 2023.

Evolution Mining intraday chart on Wednesday, 17 January 2024 (Source: TradingView)

December quarter at a glance

• Gold production of 161,073 ounces, up 2% quarter-on-quarter

• Copper production of 14,041 pounds, up 3% quarter-on-quarter

• All-in sustaining cost of $1,618 an ounce, unchanged quarter-on-quarter

The gold production figure was well-below consensus expectations of 184,300 ounces and analysts expected all-in costs for the quarter to fall further to $1,359 an ounce.

In terms of quarterly production by mine (vs. consensus expectations):

• Cowal: 71,848 ounces vs. 76,700 expected

• Ernest Henry: 20,371 ounces vs. 20,100 expected

• Red Lake: 24,095 ounces vs. 36,100 expected

• Mungari: 28,130 ounces vs. 33,400 expected

• Mt Rawdon: 15,618 ounces vs. 17,300 expected

Evolution sold 169,507 ounces in the December quarter at an average price of $3,089 an ounce.

Guidance maintained

Despite missing quarterly expectations across the board, Evolution maintained its FY24 guidance of:

• Gold production of 789,000 ounces

• Copper production of 62,500 ounces

• AISC of $1,340 an ounce

The gold production figure represents a 21.2% increase compared to FY23 and a 7.6% drop for AISC.

"All sites other than Red Lake are forecast to meet or exceed the mid-point of their original production guidance," the company said in a statement.

Muted cash flows

Gold miners face growing cost pressures from sustaining capex (to keep projects going) and exploration (to grow depleting resources and green/brownfield projects).

This has been a major drag on cash flows and we'll use today's Evolution quarterly as an example.

Operating mine cash flow rose 20.4% quarter-on-quarter to $337.5 million. This reflected consistent production from Ernest Henry, Cowal's ramp up and the recent addition of Northparkes (Evolution acquired an 80% interest back in December 2023 for $603 million).

Net cash flow (after accounting for CAPEX, exploration, working capital, interest expense etc.) was $78.8 million for the quarter, a substantial improvement from the $26.4 million in outflows in the September quarter.

Despite the improvement, you have to remember that Evolution is a ~$7 billion company. I wonder what kind of cash flows you'd see from similar sized miners from other commodities like Whitehaven Coal (ASX: WHC) or Champion Iron (ASX: CIA).

After accounting for factors such as dividends, debt drawdown/repayment and acquisitions, net group cash flow was $32.8 million vs. $32.4 million in the September quarter.

This isn't exactly a new headwind but something to keep in mind.